Good morning, good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva from Arqaam Capital, and I am pleased to welcome you to Doha Bank's third quarter 2023 earnings webcast. I have with me here today from Doha Bank management, Sheikh Abdulrahman bin Fahad bin Faisal Al Thani, the newly appointed 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 them in the chat 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, ladies and gentlemen. Thank you for joining Doha Bank Q3 investor call. I am deeply honored and grateful for the trust that has been placed in me. Before I move to the discussion, I want to express my thanks to the market, including the regulators, board directors, clients, and shareholders of Doha Bank for their support and confidence. The Q3 results have painted a mixed picture, showing both positive and need for careful consideration. Despite the challenge, I am optimistic about our potential for growth. Our approach in the upcoming quarter will be grounded in a full understanding of the market dynamic and our strategy positioning. Talking about the current performance, we are feeling positive overall, but there are some things we need to keep an eye on. We are currently focusing on three points.
Firstly, the loan growth. We are expecting our loan to grow by 45%. We are effectively exploring opportunities in the large corporate syndication and the public sector, where we have-
This meeting is being recorded
public sector, where we have recently been involved as mandated lead arranger. The market holds multiple opportunities in this space, and we aim to capitalize on them. Secondly, the current non-performance loan ratio is 6.18%. We have shown improvement for the previous quarter. We are expecting it to slightly increase. However, my commitment to manage the NPL and the Stage 2 loan at acceptable level. We have implemented strong risk management to manage this challenge effectively. Thirdly, our cost-to-income ratio will likely remain stable with a potential slight increase as we invest in digital and improve our process. As this will lead to improve our profit, reduce operational cost, and better long-term efficiency. Since I have been appointed, one of my first announcement was Doha Bank transformation. To address our challenge, we have already appointed world-class consultants to ensure we build our future strategy and our operation model.
We are already working on many initiatives, such as risk management, human capital, improving our asset quality, optimize our cost, and many others. We will ensure to make Doha Bank better every quarter and to build on our history and our client trust. Your feedback is important for a better future, and thank you. Now I will hand it over to my team for Q&A.
Yeah. Thank you, Sheikh. Welcome on board. My name is Sanjay Jain, Acting CFO. I will just give you a brief on the Q3 performance. We will now move to our financial performance for Q3, and I'll give you update Q4 performance scorecard for the financial year 2023. However, Sheikh has already covered some of the points, but I'll just mention one more time. On the balance sheet side, our total asset stood at QAR 96.3 billion as compared to last year, QAR 94.2 billion. But this has increased by 3.5% from the level of Q2 2023. Our loans and advances stood at QAR 56.7 billion as compared to last year, QAR 56.2 billion. The positive is that we have seen the private sector loan increase by 2.2% YTD, which is positive, while the government overdraft is almost nil.
As the Sheikh said just now, our guidance for Q4 has been maintained at the growth of 4%-5% growth in the private sector. Our NPL stood at 6.18%, as Sheikh just now mentioned, improving from Q2 level of 6.7%. The bank has written off QAR 410 million in Q3. That has resulted in- Guidance for before, as Sheikh said, it will pick up in Q4, and of course, it will all depend on the year-end review by the auditors as well as the regulators. Our capital adequacy ratio stood at 19.26%, and core equity standing at 12.82%, which is slightly declined reasonably so, because our risk-weighted asset has increased from Q2 level 2.6% and 6% year-on-year level. The guidance for Q4 to be in the range of 18.5%-19%, given the expected asset growth in Q4, which is going to be in the private sector.
Now, going on the P&L side, our profit for Q3, nine months, QAR 627 million as compared to nine months last year, QAR 933 million. Our net interest income is improving in progression, which is QAR 562 million as compared to Q2, QAR 537 million, which is 4.5% better than the last quarter. Our margin remains stable from Q2 level. At Q3, our margin is 2.25%, and our guidance for Q4 NIM to be 210- 220 basis points as we expect to book some new asset with tighter margin, while we also look to improve our LDR ratio in coming quarter. Our fees and commission is QAR 277 million, which is up 1.6% as compared to the same period, nine months last year.
Another positive side is our net operating income, which is improving in progression from Q2 level, which was at QAR 715 million in Q2, now improved to QAR 794 million in Q3 2024. As Sheikh said, our operating income cost, our margin really has increased by 3.2% YOY. Our cost-to-income ratio stood at 32.8%, which has improved from Q2 level, which was at 34%. Our guidance for Q4 for the cost-to-income ratio is around 35% or below 35%. Our loan loss impairment, we have taken more provision this year, which is for nine months, QAR 769 million versus last year, QAR 681 million, which is up 13%. The cost of risk as of Q3 is 179 basis points. The guidance for the cost of risk for the Q4 is 180- 190 basis points. This, we have not factored in that the recovery.
If recovery comes in, that guidance may go down. It will all depend on how the recovery phases through. This is a very brief summary on the Q3 result. Now I open the floor for the question. I have with me Taher, Acting Chief Risk Officer, and Hesham Kalla, Investor Relation, and of course myself, to answer your question. Thank you.
Thank you, Sanjay, for the presentation. We are now ready to take questions. You can use the Raise Hand option or the chat box to ask questions. The first question is from Waleed Mohiuddin. Please go ahead.
Yes, thank you much for the presentation. A couple of questions, please, from my side. Firstly, on your cost of funding. You show in a slide that now you've dropped from fourth to fifth in terms of cost of funding. Just wanted to get your thoughts on what optimization plans the bank is adopting to help with the cost of funding, especially given that your loan-to-deposit ratio still remains elevated. If you would also provide a mark-to-market on where you stand versus the regulatory limit and what you intend to do to get in line with the regulatory limit on the LDR side, because I believe that if you were to make some adjustments around that, your cost of funding will further increase.
When I saw your guidance for the fourth quarter, I thought this is to do with that adjustment, that it's your cost of funding which will go up, which is why you're expecting a further drop in margins in the fourth quarter. Your thoughts on cost of funding, optimization plans and the LDR ratio would be extremely helpful. My second question is on asset quality. You've talked about the year-end review, which obviously will drive what level of cost of risk you book at the end of the year. But at the same time, if you look at a snapshot of your balance sheet, September 2023 versus September 2022, we see not only has the Stage 3 increased despite the write-offs you talked about, but Stage 2 continues to tick up as well.
So if you could explain when we can expect Stage 2 and 3 to stabilize or basically Stage 1 to start growing. Then you mentioned a recovery that you expect. If you could just provide a little bit more color on what this recovery is and what's the timing around it will be extremely helpful. Thank you.
Thank you. I'll take the first question around our cost of funds. The market and yourselves are very well aware that while we took some initiatives for long-term funding a couple of years ago when rates were low, they proved to be quite prudent, and now hindsight says we probably should have issued a bit more. That being said, liquidity in the system is very strong. There was a drop-off in deposits, whereas we're now utilizing short-term interbank money market instruments, which come in a bit more cost-effective, around 50 basis points. The Group CEO, as part of this strategy, is obviously to be adherent to all regulatory limits. If you look at the new calculation, we closed at 117, which is marginally higher. Than where we need to be, and we will work as growth to the loan book comes to fund it and to move it in.
That does give you an inclination that the cost could climb during Q4 while we do this exercise, but we are going to be very stringent on how that evolves. Also, another plan that the Group CEO, along with wholesale, retail, and treasury, will be looking at CASA. I know we mentioned that end of last year and the beginning of this year. Again, because of market dynamics, it has been slow to evolve, but we are still positive as we have new relationships with the Group CEO, those corporates that come in, we should be able to capture some of that. In our meeting yesterday with the Chief T&I, we are going to be very proactive. On the risk side, Taher, you want to share with me?
Hi, yes, and thank you for your question. With regards to Stage 2 increase, I agree with you, but it is a minimal increase and the reason for the increase is only for the certain facility has been increased for certain customers, which has impacted the increase of that particular segment or that Stage 2 accounts with a few account has been increased, which is approximately QAR 100 million. It is not a major increase, which has moved from Stage 1 to 2. Currently we are in the process since the cooling period has been under Circular 15 has been already expired now the one year. We are reviewing the accounts and hopefully before year end we will be approaching Central Bank to approach them for some upgrade for certain accounts which are qualified for that.
In terms of recovery, we were expecting a good recovery this year, which has not yet materialized. If it is not this year a good recovery happens, I expect that by mid of 2024.
Yeah, and we have given our guidance for year-end is without the recovery. If recovery comes in, that cost of risk will go down.
Got it. Thank you much.
Thank you.
Thank you.
Thank you, Hesham and team. Next question is from Chiro Ghosh. Chiro, please go ahead.
Chiro, buddy, you are on mute.
Can you hear me now? Hello?
Yes.
Yes. Hi. Yeah, hi. This is Chiro Ghosh from SICO Bahrain. Three very quick questions. The first one is, I see there is a pickup in the insurance income. If you can throw some color on it and how sustainable it is or how should we look at it for the rest of the year and going ahead? That is my first one. The NIM guidance overall looks quite good. If you can share with us what are the assumptions you are making for it to reach at that level? You will be among the better NIMs within the Qatari market. That is my second question. And the third one is, what will be a comfortable coverage level? If you can answer these three questions, please. Thanks.
I'll take all your question, Chiro. This is Sanjay.
Right.
First on insurance income, we had recovery, sort of won the court case around QAR 62 million-QAR 63 million, one-off income has come. Actually, we paid that insurance loan in 2019, for which we won the court case and we got this recovery back and this one-off income, of course. That's on the insurance income. Second is the NIM guidance we have given. Our current NIM is 2.25%, right? We have given guidance for Q4, 210-220 basis point, reduction of 10-20, 20-15 basis point, reduction. Why? Because we'll try and improve LDR ratio and the kind of assets we are going to book will be thinly margined. That's the reason we have given that guidance.
Sir, I was referring to the 2.5%, the longer term.
That's longer term. Yes. See, if you look at, historically we had a 2.59% one and a half year before our NIM, right? In declining rate environment, I think our NIM is going to improve. That's what we said in last year also then in the increasing rate environment, our NIM get little bit of compression because we are not able to transfer all the repricing to our loans. That's really our guidance was. Now, coming on the coverage. Yes, I think the last quarter, the same question of a coverage, ideally it should be 80%-85%, but to reach there, it is going to take some time. Now, the guidance for the year-end, I have not given the reason being that now the coverage is very good and very strong, 72%, but it all depend on how much NPL formation happens and how much write-off happens.
Based on that, depending on that, only then I can give you a guidance on the coverage. But yes, I think given the NPL ratio tick up, our coverage ratio will go down in Q4.
Just a slight follow-up. If I look at the NPL difference over second quarter 2023, and then I take off the write-off part, it would still be a QAR 140 million, QAR 150 million of fresh NPL. Which are the sectors which are contributing from that?
Sectors of the NPL.
The QAR 143 million NPL. Give us a second.
Sure, sure.
Chiro, bear with us.
Sure
We'll try to reverse and get you that strike.
Sure. You can send me offline also. That's absolutely fine.
Yeah. High level, we know why it was created.
It's cool.
At a micro detail, but with regards to what sector, that is not in front of us at this time.
Sure. Okay. No problem. That's all from my side.
Okay.
Thank you, Sanjay. If you have any more questions, please use the Raise Hand option or you can always send a text via the chat box. While we wait for more questions, Hesham, I have one quick question, if I may. If you could just give some update on your de-risking policy under the new management in the medium term rather than just 2023 or 2024. How much of your legacy book you still wish to de-risk, and how should we look at the whole process under the new management? That would be helpful.
Janany, you chopped off at the beginning of that. You want us to give you an update on the de-risking with regards-
Yes. How much of your legacy book you wish to de-risk more, and how you intend to handle it under the new management. That would be helpful. I think you're still muted, Hesham.
Sorry about that. You know me, I get a bit distracted. The Group CEO is coordinating right now, with the regulators, and there is a couple of initiatives that are there on how we are going to resolve this issue. As he stated in the opening comments, he is very committed to getting everything at a more acceptable level. In terms of de-risking, that's yet to be known. What he did advise us on also is, as and when this information is known, you will hear a lot more at the end of the on the full year call on what's occurred over the first 90 days with him in office.
Thanks, Hesham. Thank you. We have a question from Asad Buheji. Going forward, what is the cost of risk guidance for 2024?
Yeah. I think also, if you all allow us, with regards to the KPIs that we put out there with the five-year strategy, and we all know this is originating at a board level. The Group CEO, under his transformation, are reviewing everything, and at this time, we are not prepared to give you guidance on 2024. We wanted to be as clear and as transparent on what is known and is available to us right now for Q4. On the full year call, we will hope to have the Group CEO be able to give you the guidance, and not only for 2024, but possibly even 2025 as well.
Thank you, Hesham. Another question from Asad. Can you provide clarity of the real estate collateral? How much decline market-to-market relative to the carrying value in your books? How much is the decline of the market-to-market relative to the carrying value?
Yeah. Hi, Taher here. Approximately the decline had happened approximately between 25%-30% overall, which we are not totally disturbed about it. We are pretty sure that the market will pick up again and the level will come to the normal, acceptable level.
Thank you, Taher. I don't see any more questions. Hesham, over to you if you would like to say any concluding remark.
We thank everybody for their continued support. We await the Group CEO's direction and review. As we are made aware, we will be sure to communicate the same to the marketplace. You all know that I'm at your disposal 24/7. Anything you need, please reach out to us, and we'll be happy to return comments.
Thank you, everyone.
Thank you, Hesham and team, and thank you, everyone. Thank you for joining the call today.
Janany, Sheikh, please.
Yes, I want to say one thing before we close the line. I have been listening all the questions. Thank you for your questions, and we will be very transparent by the end of Q4. We will be sharing our strategy and the market with you guys as well. We will share everything and we will be also transparent. Thank you very much.
Thank you all.
Thank you very much.
Thank you.