Good morning, good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva from Arqaam Capital. I am pleased to welcome you to Doha Bank's third quarter full year 2023 earnings webcast. I have with me here today from Doha Bank management, Sheikh Abdulrahman bin Fahad bin Faisal Al Thani, the Group Chief Executive Officer, Sanjay Jain, the Acting Chief Financial Officer, Taher Alagha, the Acting Chief Risk Officer, and Hesham, the Head of Investor Relations. Please note that if you wish to ask a question after the presentation, you can use the raise hand option. Alternatively, you can type in the text box and send them directly to the Arqaam Capital account. Without further ado, I will now turn the call over to Doha Bank's Group CEO. Over to you.
Thank you very much, everyone. Good afternoon, everyone. Thank you for being part of this important investor call as we wrap up 2023. It has been a journey of challenges and opportunities, and I am happy to share some key highlights with you. Let us start by looking at our performance in the last quarter of 2023. After I have taken over as a group CEO, there is six points that I would like to highlight. Number one, we have witnessed a notable 5% growth in our total assets. Number two, our focus on the private sector has paid off with 2.8% increase in loans, reflecting our support of a new business, for new business. Number three, we have seen remarkable growth in customer deposits by 13.8%. This means that the customers start to trust the bank.
Number four, we have successfully brought down our loan-to-deposit ratio to 104% from 117% in Q3, which is a significant achievement. Number five, finally, in my effort to build a strong leadership team, Mr. Jody Sanderson has taken over as a Chief Business Officer overlooking Wholesale Banking Group, and Dr. Fawad Ishaq is the new appointed as the Chief Treasury & Investment Officer. Both of them are with me in the call. I want to also inform you that we have been working very close with our international consultants. As I mentioned last time that our consultants working very close with us. We finalized the assessment from last time, and today I am going to share part of the strategy. We covered 360 degrees of the assessment for Doha Bank. There is 10 different dimensions that I want to share as well. Number one, credit and investment portfolio.
Number one, risk, liquidity and funding. Number one, retail and the private banking. Number four, wholesale banking. Number five, international business. Number six, digital and IT. Number seven, cost. Number eight, critical process. Number nine, organization and culture. Number 10, governance and controls. As well, I would like to share that we have a lot of important things. We have a priority. We have 87 initiatives. There is four priority, I would love to share it with you. Priority number one, I want to have clean access with a good client such as public sector and trade, and the private banking. Priority number two, to have a strong digital banking apps and mobile apps. I think this is the future of all banking sector. Priority number three, optimize our cost, which is very important for us for 2024, that we would love to reduce QAR 100 million this year.
Priority number four, priority number overall, health, liquidity, and funding metrics. Now, I am going to handle the call with our chiefs who are with me right now. Thank you, everyone.
Thank you, Sheikh for your update. Thank you, participants. My name is Sanjay Jain. I will just brief you on the 2023 financials update. On the balance sheet side, our total assets stood at QAR 101.3 billion at the year-end, which is an increase of 3.7% year-on-year. Our loans and advances stood at QAR 58 billion, which is flattish year-on-year. I would like to highlight, and just to bring it to your attention, that we have increased our private sector loan book by 5% year-on-year. As we speak now, our government OD is nil as on 31st December 2023. Now, guidance for 2024, we expect corporate syndication, high quality private sector addition to grow our loan book by 5%. On the investment book, we grew around 21.7% year-on-year. Our deposit grew 2.9% year-on-year and stood at 51.6%.
Sorry, QAR 51.6 billion at the year end. That resulted in our LDR reduction of 1.4%, improving from 117% from Q3, as Sheikh mentioned. Our guidance for LDR ratio for 2024 to improve and to be as near as possible or to 100%. As Sheikh mentioned, our NPL increased this year to 7.36%, increased from last year's ratio of 6.43%. The increase was due to NPL formation more than the write-off, which we had of QAR 924 million write-off we did in the year 2023. The guidance for 2024, I think NPL to remain at the similar level or say, around 7%. More guidance to follow in the following quarters as we move forward, and we will keep you updated more on the quarterly call, as this is our key priority into 2024. Our specific provision coverage stood at 59% as compared to 61% last year.
We are committed to improve our coverage ratio in the coming year, six to the 65%. Our capital adequacy ratio stood strong at 19.25% compared to last year, 19.94%, and approximately 13% core equity versus last year, 13.32% last year. Given our asset growth in the next year, we expect our total capital adequacy ratio to be around 18.5%. Moving on to the profit and loss account. Our bank achieved a profit of QAR 769 million for the year as compared to 765 million QAR last year, showing a marginal increase of 0.5%. Our net interest income declined 7.9% year-on-year, and our NIM stood at 221 basis point at the end of the year, which is in line with what guidance we gave in our Q3 calls.
Our guidance for NIM for 2024 to be around 220 basis point, which may see some attrition, 5- 10 basis point in the coming year. Our fees and commission grew 1.5% as compared to last year, and we expect a double-digit growth in fees and commission in 2024. Our income from investment grew significantly more than 3x the last year. We do not expect the similar level of income in 2024. Our total cost increased 5.8% year-on-year, and our cost to income ratio stood at 33.4%. As a Guidance, we see a tick-up in the cost, 3%- 5% in 2024, and the guidance for cost income ratio to keep it below 35%. Sheikh mentioned that there will be a saving of QAR 100 million. Yes.
That saving we will be spending in the right areas, bringing in the efficiency, which we will see in the future. With the key initiative, we will keep it in mind. Our net loan loss impairment of QAR 892 million versus last year of QAR 970 million, which is a decrease of 8%, and our cost of it is 154 basis point versus 161 basis point last year. The guidance for 2024 is to remain at the similar level or say around circa 150 basis point. That's it from my side, and we can go now to Q&A, if you have any questions.
Thank you for the presentation. We are now ready to take questions. I think we have our first question from Waleed. Please go ahead, Waleed. Thank you. Unmuted.
Thank you very much. Thank you, Rauf. Thank you for the presentation. Couple of questions, please. Sanjay, you shared the guidance for cost to risk at the end of the call, and you are saying similar levels to that which you saw in 2023. Question is that, when will we start seeing a proper improvement in credit losses? What is keeping credit losses so high? What steps is the bank taking to bring it down? Related to this, we have been hearing that there could be some support from the government. Are we at such a stage where there are some proposals from the government or the authorities to solve the issue with stage two loans? That is my first question. If you could help us on the asset quality side, that would be great. Second, just wanted to understand the growth opportunities for the bank.
You mentioned they want to bring the loan-to-deposit ratio as close as possible to 100%. I would imagine there will be a significant cost attached to that as you go and start collecting deposits. If you could just help us understand the growth opportunity and how you would go about funding that growth opportunity and at the same time bringing that loan-to-deposit ratio down to 100%. One other question would be on the tax, if you could confirm what you have heard regarding the corporate tax for 2025 or 2024. Thank you.
Let me take the last question first. On the tax side, on the tax end, the U.A.E. is going through that global minimum tax. We are hiring the consultant in U.A.E. side. Here we still do not have much of the clarity and the guidance as of now. We will keep it for probably discussion for probably next after Q3 or something, maybe next year. As far as the growth portion is concerned, as Sheikh just mentioned, that we are very committed to build up the right balance sheet and the right mix of the deposit. If you look at the deposit growth significantly in Q4, which is 13.8%, which is quite significant, as Sheikh mentioned in the call, which really costed us, and that increased our cost of fund in Q4, right?
We are almost there now, 104% and going to 100%, and it will cost us something, but I think that's a strategy which we are going to maintain and keep our LDR ratio maintained. Despite we grew our asset, as I say, high quality assets and corporate syndication, we will manage that liquidity and the growth. On the cost side, Taher, your answer?
Yeah. Good afternoon. Cost of risk, the bank has taken a strategic plan for 2024, mainly to consider only on the low and medium risk-based customers based on the economic condition, and to emphasize on the sustainability of those portfolios. In terms of asset quality, as highlighted by His Excellency, the bank has also taken as part of the strategic plan of 2024. We have taken steps on that on three streams. Number one, the bank has created a new remediation unit to take care of all the critical accounts and remediate accounts where a prompt decision can be taken to expedite the remediation and recovery, wherever applicable. Focus on the growth on the booking of the asset side, the asset of the bank on low risk category customers.
Additionally, I would like to highlight that the bank has built up a sufficient provisions reserves for certain accounts where we believe that these are critical accounts and in case of deterioration, it can be written off. These are the business from my side.
Adding to that, Taher, is that, while we are just giving a guidance of 150 basis point, we need to build up our provision, right? Your coverage is on 59%. Correct? To build up our coverage up, we need to take provision, right? We will monitor those, as I said just now, that our cost of this right of NPL quarter- on- quarter will give you update on the guidance, as that's one of the key strategy which our Group CEO is looking into it.
Thank you very much. Just to put a comment on the-
Waleed, if you will allow me. We cannot speak on behalf of what the government may or may not do. We are not in that business. We are here to protect the bank and do right by the bank. If and when the government makes such decision, we cannot comment right now.
Got it. Okay. Thank you.
Thank you. Our next question comes from Chiro. Chiro, please go ahead.
This is Chiro Ghosh from SICO Bahrain. I have two questions. The first one is, I see a slightly longer term loan growth guidance is around 3%-5%. I just want to get a context, what is the Qatari loan growth expectation you have? I just want to get a sense whether you are looking to gather market share or do you intend to grow at a Qatari banking sector's loan growth too? That would be my understanding about I want to get a better understanding of the loan growth. Similarly, on the capital adequacy side. I see that you have a plan to reduce it towards 17% zone. Do you intend to do this through giving out higher dividends or it is aimed by growing your balance sheet at a faster pace? This is my two question.
The third one is in continuation to the previous one. If you are shifting to lower risk assets, which is like public sector loan or other lower risk loan books, wouldn't it impact your net interest margin? Because I see that you expect a much higher net interest margin expansion, like 2.5 zone. On the other side, you are shifting towards a lower risk, lower leverage balance sheet, which is a slightly lower loan-to-deposit ratio. So how are you seeing the margin expanding to 2.5? These are my questions.
Chiro, thanks for your question. If you will allow me, I am going to introduce Mr. Jody Sanderson, as the Sheikh has already introduced. He joined us as Chief Business Officer, and he is overlooking the Wholesale Banking Group.
Good afternoon, everyone, and thanks for taking the time. Number of questions there, I think all relating to the same thing in terms of how we are focusing our growth on the asset side. In terms of where our focus is, the Qatar market is going to be relatively subdued this year in the private sector. There will be growth as part of the National Development Strategy. I think we see that kick in more in the second half of the year versus the first half. What we have been doing at the bank is investing in the quality of our team in terms of pursuing opportunities in the public sector, the GRE space, corporate syndications, working with top tier regional, global, and local banks in terms of doing proper due diligence with high quality corporates to increase the overall quality of our book.
What we are seeing based on our pipeline and what we have booked even in the fourth quarter is, given our cost of funding and the opportunities that we are selectively pursuing, we are forecasting growth and profitable growth in relation to those situations. Now, as you can imagine, this is not necessarily funding the Ministry of Finance in Qatar, because our cost of funding would not warrant that. This is across a broader range of corporate syndications, DFI syndications, and frankly, some really good opportunities we are seeing coming through our international network, where we have got natural connections that ties into our home market. I think, in short, I am quite optimistic over the course of 2024, based on some of the new hires that we have put in place, our focus, and the quality of the team. I think that will drive the majority of the growth.
I do expect over the coming two years, the private sector will see an uptick here. We are well-positioned for that. Our client base is exceptionally strong in the private sector, but we can grow outside of that in 2024.
Yes. Chiro, as for your question on the capital adequacy ratio, the guidance was 17%, what we have said is the minimum ever we will go. The moment we reach 17%, we will go for the capital rise. We are not going to achieve 17% through paying higher dividends. If you see last two to three years, you have seen our payout ratio is around 40% in line with the market. We are maintaining our capital adequacy ratio through our internal generation. So we do not see reaching 17% in at least short term, two to three years from now, and maintaining our loan growth.
The last one related to the margin, 2.2%-2.5%.
Jody has said, yes, we are looking at growing our book. As I said, in Q4, what has happened, you rightly said, Devin, when we grew our book, loan book, we grew our deposits and we had some margin attrition in Q4, right? That is the reason I am saying in coming year, a 5- 10 basis point attrition. Just because of that, we are high quality loan book, and we maintain, try and go nearer to 100% LDR ratio.
If I could add one important comment here, the private sector in Qatar is actually highly competitive, given that there has been growth for over a decade, and it was quite subdued over the past year on the asset side. So margins have been compressed in that business. There is actually more attractive margins in what are often higher quality credit situations through the syndications desk right now, which I think, again, can allow us to maintain that spread compared to what you have historically seen, in particular, in 2023.
Yeah. That is all from my side. Very clear. Thank you very much.
Thank you, Sanjay and team. I have a few questions on the chat box. Let me read it one by one. I have about four questions from Citigroup. The first one is: Which loan sectors are facing the highest proportion of non-performing loans?
This is public.
Yeah.
This is public. Go on.
Its contracting sector is the most, the highly one impacted sector.
Thank you for that. The second question is: What will be the trend of NPL amount or ratio looking forward with outlook?
We have given the guidance of around 10%. As we said, this is the focus, and the guidance probably we will revisit each and every quarter. So for the time being, it looks like in the range of 10%, but I think as when we move forward in Q1, Q2, Q3, we will give you more update on the NPL formation, write-offs, as well as the cost of risk.
Thank you, Sanjay. The next question is: Please provide overall outlook of Qatari real estate and contractor or contract financing sector.
I guess that is one for me. Listen, the real estate market saw significant growth up to, say, 2022, which is natural, and 2023 saw a year of more muted activity. There is a supply and demand imbalance in the real estate sector today, which is no secret to anyone. We do expect as a result of the National Development Strategy III, that as we head into the latter part of 2024 and beyond, there will be new economic activity that I think will start to correct this over time. Now, it is not a 2024 fix, but this clearly given the means of the sovereign to invest and their well-defined plan, I am optimistic over the coming years that the current imbalance can improve in the real estate sector. When it comes to contractors, there has not been a lot of new activity over the past year.
In terms of new situations where there have been challenges, we really cannot say that we have seen that. There have been certain initiatives taken by the sovereign to assist with contractor payments, which I think has been positive, and I think the situation is improving, not deteriorating from where it was 12 months ago. In general, I think the most difficult times are behind us on the contractor side, albeit it has been a difficult period, I think, for the contractors and for the banks as a whole in that sector.
Thank you for the detailed response. The last question from him is: Please provide 2024 targets for loan growth, NPL ratio and NPL coverage.
Loan growth, we said private sector 5%. NPL ratio, just now we answered that question number two. What other thing?
NPL coverage ratio.
Coverage ratio, we said we will try and improve. That is what Chiro was asking question that 150 basis points is high. Yes, to improve our coverage, we try and improve our coverage from 60%-65%. It is all depending how we go forward in Q1, Q2, and Q3.
Janany, if you allow me, please. The participants can review the investor presentation, slide seven. We have our performance scorecard and our guides for 2024.
Hesham, I have another question from Essa. Can you provide more details related to the litigation losses booked during the quarter?
Oh, litigation again.
The litigation losses from?
Yeah, there was a litigation expense booked in Q4.
Yeah. That's one of expenses we had. That's for non-recurring nature. That's one of legal expense we had to pay. There's no further liability to pay on that, and it's non-recurring, and we do not see any more pipeline of such incidents in the future.
Thank you, Saad. I have another question from Andy Prudnell. Could you please expand on your aspirations for non-interest income in terms of growth as a percentage of total income, and what are the drivers?
Non-interest income, as I said in the guidance that our fees and commission, we are focusing on it now. Which I gave a guidance of 10% increase in the fees and commission. It could be more, but yes, that's one of the key priorities that we have. Looking at the investment income, as I said, there was some good income half pool. This year, if you look at, we are building our investment book quite significantly. If you look at, there's a quite significant investment book we grew and that helped. Probably now given the reversing curve of interest income going down, there could be some opportunity over there to have a gain on that. I will just hand over to Dr. Fawad to give further answer on that.
Sure. Happy to add here, and thank you very much, everyone, for joining this call. I think, the key things I want to highlight is that we currently have a very high-quality liquid portfolio of QAR 30 billion. QAR 16 billion of that is unencumbered, so we have that as a liquidity buffer. We have increased the investment book significantly because we have been able to generate a decent return by repoing it, so it's a self-funded part of the growth, and that's what you see due to the banks, which is mainly the repo growth against increasing of high-quality assets. We also have been able to generate income on back of using our AFS book, where we utilize the market movements to book some profits. 92% of the book is hedged, so we don't expect any volatility in that.
We'll be selectively taking profits as we see the curve sort of getting steeper. I think all of that will add both on the NIM side, our ability to expand those margins, as well as to be able to contribute from an asset side on the investment book.
Thank you, Sanjay and Dr. Fawad. The next question from Zuzain. Please go ahead.
Hi, everyone. Thank you for the presentation. I have two questions. One is, can you provide the net interest income sensitivity to rate cuts next year? The second question is, what are the drivers of the OpEx growth in 2023? Thank you.
Can you repeat that first question?
Can you restate that first question, please?
Yes, of course. So what is the net interest income sensitivity to rate cuts next year? Can you hear me?
Let me take the impact on our net interest income due to rates. What we are seeing is that according to our in-house view, we are expecting about three rate cuts in 2024 and about six in 2025. I think the impact on us is, given that we have most of our liabilities on the short end of the curve. This helps improve our cost of funding, on the short end, where we have most of the liabilities out there. Our assets naturally on the longer end of the curve. We are sort of measuring the curve as well, both the flat sort of move as well as the change in terms of steepness of the curve.
For us, two impacts very clearly that we are managing through gaps is that our liabilities will become cheaper as the rate cuts come in, and we will try to lock in the longer-term assets to benefit from booking high yields on the investment side. As I said, most of the rate risk on the book is neutralized through interest rate swaps.
On the OpEx side, yes, there will be some pickup in the OpEx expenditure in 2024. This is part of our overall strategy of improving our efficiency, though we will be saving some cost at the same time, we will be sort of, you can say, recycling that cost towards efficiency and improving people, process, and technology. So, initially, yes, there will be some pickup in the cost, but in short term to medium term, you will see the effect of that cost coming through, and we will see improvement in our cost income ratio in the coming years.
Thank you. I just want to understand the drivers in 2023 of the OpEx growth.
Oh, okay. There are various areas. There are some technology and there are some legal costs. There are some various areas and the cost has just gone through. To be very frank with you, there are some, not significant, but there are some one-off costs also went through.
Okay, thank you.
Thank you, Sanjay and team. As we wait for more questions, could I ask a couple of questions, if I may? The first one is, when you give the medium term strategy, it is from 2023 to 2027. I am just wondering whether full cleanup will be completed by 2027, and can we take 2028 as a normalized year for Doha Bank? If you could add any color on that would be helpful.
Janany, yeah. What you stated is correct. We do have a five-year strategy that was adopted by the board last year and handed down, and we do benchmark ourselves towards progressing in that direction. With regards to normalization, it will really depend on what the new management being able to execute and how fast we are able to clean this up during the transformation phase.
I want to add a couple of points. As we promised from last Q3 calls, we mentioned that we are working with one of the most popular consultants, international. We worked very hard to ensure that we chose to finalize the 360 assessment. We delivered within eight weeks, which is also, maybe a record number for us. Right now we start our implementation. Yes, it is a five years or less strategy, but to implement everything, we will ensure that it is going to be less than two years. It takes hard work from everyone here. We hired a team to transformation to be with us next period, and all the chiefs, the new leadership who joined us recently and who will continue with us for the future. They are working very close, with the transformation.
Weekly basis, we are looking at each topics, especially the priority that I mentioned it previously, which is the technology part and the IT, because from my understand that it's priority for the banking sector, and it will change a lot. The retail banking, it's also important that increase the numbers of clients here internally in Doha. By reducing a lot of cost, if we close a lot of branches, especially if we implement the mobile app, the more advanced, we implement the digital. We are working very hard, and we start to implement it now. We will make a record as well to ensure this is going to be less than two years to finalize full implementation. This part of our strategy and year by year or quarter by quarter, we will find out the developers there.
Thank you for the detailed explanation. I have one more question in the chat box from Karine Selhab. Are there any plans or guidance to increase the LCR and how?
I'll take that. Right now we are working in terms of our funding plan. Currently we are going to be compliant hopefully in terms of most of these ratio. LCR already we have been compliant. We're actually creating enough of liquidity buffer. As I said, we have the ability to get unencumbered asset of QAR 16 billion. That's the liquidity buffer we keep, for the LCR ratio. We'll keep it pretty healthy as we are looking at both the assets side and liability side. The plan is to focus on retail as our Group CEO has mentioned very clearly because CASA is the important part of that liability generation for us, and that helps in terms of your shorter end LCR ratios. I think it is pretty healthy right now. We are keeping a very close eye.
There's a particular task force specifically meant for looking at these ratios to be compliant in 2024 as we are guiding and to keep these ratios healthy.
For December, we had LDR ratio of 102.8%, which is more than 100%. We are already
Yeah.
Thank you, Sanjay and team. I have another question from Lee Beswick. He is asking to tally the LDR ratio that you have disclosed. I think it says the LDR is 104 that you have mentioned. I just want to tally the loan and deposit numbers that you have used for the calculation.
LDR ratio, not LDR ratio. It is the LDR ratio. What happens is that, customer deposit and some long-term deposit, and that is allowable by central bank to calculate if it is more than couple of years, you take 30%, if more than one year, you take 50%. There is some formula to calculate the LDR ratio. We take advantage of the longer-term deposits.
Janany, our calculation that we disclosed in the investor presentation is based on the QCB 9 circular of 2022 that was issued March 1. That is the computation that we do. We do not do the straight plain vanilla that they find on Bloomberg. We just divide gross loans to deposits. We overlook and encompass all of our debt and long-term deposits in there.
Yeah.
Thank you, Hesham. One more question from Adamson. Any plans to come to the Eurobond market this year?
Yes. As we are looking at the funding plan overall, we have the EMTN program refreshed, so we have the ability to come to the market at any point in time that we see it being supportive at the right levels. We also naturally along with that, have our bilateral and syndication plan in place.
You are right.
Yes. I think what will help the whole market is that there is already appetite for the risk, but the recent Moody's upgrade, I think, will be significant in terms of one notch upgrade, which then helps in terms of us being in the capital markets and using the best sort of trade-off between the size and price.
Thank you, Sanjay. I think that's all we have in terms of questions in the chat box, and I can't see anyone raise their hand as well. Hesham and team, back to you for any concluding remarks.
Thank you very much for attending and we're looking forward for the next call, end of quarter one, and we'll be sharing more information.
Thank you very much.
Thank you.
Thank you, everyone. Thank you.