Hello, welcome to Dukhan Bank conference call. Please note that this call is being recorded. You will have the opportunity to ask questions to our speakers later on during the Q&A session. If you would like to ask a question by that time, please press star one on your telephone keypad. Thank you. I would like to hand the call over to Shahan. You may begin.
Thank you, Angela, Hello, everyone. I want to welcome you to Dukhan Bank's third quarter 2025 financial results conference call. On this call from management, we have the bank's Acting CEO, Ahmed Hashem, Group CFO, Osama Abu Baker, and Riaz Khan, Head of Reporting and Budgeting and IR Officer. As usual, we will conduct this call with first management reviewing the company's results, followed by a Q&A session. I will turn the call over now to Ahmed. Please go ahead.
Thank you, Shahan. Asalam Alaikum, everyone, Good afternoon. It is a pleasure to discuss our third quarter results and the broader economic context of Qatar's growth story. Over the past few months, Qatar's economy has continued to perform with resilience and balance, supported by strong fundamentals and forward-looking policies. Let me start here with the macro picture. The IMF and Oxford Economics reaffirm that Qatar's economy remains on a solid trajectory, with growth projected at around 2.7% in 2025, rising to 4%-5% by 2026, driven by expanding gas production and a vibrant non-energy sector. In September, the QCB reduced the policy rates by 25 basis points, aligning with the Fed's easing cycle. That is a move expected to stimulate lending, encourage private sector investments, and ensure liquidity.
Real GDP grew 1.9% year-on-year in the second quarter, led by 3.4% growth in non-hydrocarbon activities, showing that Qatar's diversification strategy is gaining ground. Non-energy sector now contribute about 2/3 of national output, particularly in construction, logistics, tourism, and financial services. A testament to the success of the Third National Development Strategy and Qatar National Vision 2030. At the core of the medium-term outlook lies the North Field expansion. That is the world's largest LNG project, which will bolster physical strength and generate wide economic spillovers. In April, Qatar is scaling up. I am sorry. In parallel, Qatar is scaling up renewable investments, ranking among top five Arab countries for renewable energy investment, underscoring a balanced and sustainable energy policy.
The country's diversification efforts are further reflected in the growing free zones, Ras Bufontas and Umm AlHoul, attracting foreign investments in logistics, technology, and manufacturing. Turning to the financial sector, Qatari banks remain in excellent health. QCB data shows commercial bank assets rising 5.5% year-on-year to QAR 2.11 trillion , with domestic credit up by 5%. Liquidity and profitability remain solid, and the IMF confirms that the system is well capitalized and resilient. On the domestic front, real estate and infrastructure are regaining momentum. Ashghal awarded 13 new projects worth QAR 12 billion , integrating AI-based asset management and smart technology. Digital spending and luxury retail showed double-digit growth as Doha cements its global reputation as a shopping and cultural destination. The newly launched Qatar Calendar 2025, 2026 features a strong lineup.
FIFA events and major conferences and events, all supporting hospitality and tourism sector growth. In summary, Qatar's economy continues to show strong momentum across all key pillars. For the banking industry, this translates into healthy demand, robust liquidity, and growing opportunities in digital and sustainable finance. Now with that, I will now hand over to Osama and Riaz, who will take you through the financial results. Over to you, Osama.
Thank you, Ahmed, and good afternoon, everyone. The bank has delivered a solid nine months performance, building on the strategic progress made in recent years. Our resilience and client-focused innovation have positioned us as a trusted partner in national economic advancement. For the nine months period, our net profit reached QAR 1.19 billion , representing a 4.4% year-on-year increase. Total assets reached a record of QAR 118.1 billion , underscoring continued growth across our portfolio. Liquidity remains strong, with ratios above regulatory thresholds. Our capital adequacy ratio stood at 18.9%, well above the minimum requirement, highlighting the bank's solid capital base. Looking ahead to the end of the financial year 2025, we expect mid single-digit balance sheet growth aligned with the country's overall GDP trajectory, led by wholesale and private banking.
Profitability growth is expected to mirror this trend, supported by stable NIMS in a range of 2.1%. The benchmark rates are expected to reduce further. It may support further margin expansion. Asset quality is expected to remain stable with cost of risk at 15 basis points - 60 basis points. We will maintain a conservative provisioning approach, continuing to build buffers. I will now turn it over to Riaz for a detailed overview of our nine months performance.
Thank you, Osama. Let me begin with a brief overview of the group's balance sheet performance as of September 2025. Our total assets reached QAR 118.1 billion, underpinned primarily by financing assets of QAR 85.7 billion, representing 73% of the total assets. Investment securities contributed QAR 22.4 billion, or 19% of the total. We achieved approximately 1% year-on-year growth in our financing portfolio, reflecting our disciplined approach to capital deployment and market share expansion. The focus remains on building a diversified, high-quality portfolio, prioritizing prudent risk management over volumes. On the funding side, we continue our efforts to diversify while leveraging long-standing client relationships and maintaining a balanced maturity profile. As a result, we maintained our regulatory loans-to-deposit ratio of 94.5%, with both LCR and NSFR comfortably above the regulatory thresholds, demonstrating Bank's sound liquidity management. Non-resident deposits remained at minimal at 5.9% of the total deposits.
This is in line with our strategy to focus on stable domestic funding sources. Turning to profitability, our first nine months results reflect solid delivery against our strategy, with net profit rising 4.4% to reach QAR 1.19 billion, supported by a 10% growth in the net banking income. This growth was driven by our continued revenue diversification efforts with stronger contributions noted from non-profit income streams. Additionally, prudent risk management of funding costs provided further support to the group's net banking income. We remain committed to protecting our margins and managing the cost of funds efficiently. Our NIMs slightly inched higher to reach 2.1%. Operational efficiency also remained a key strategic focus, with continued optimization efforts enhancing the overall profitability. These results highlight the group's resilience and its ability to sustain growth in an evolving operating environment.
On the credit quality, which improved during the period, NPL ratio declined to 4.4%. Stage 3 coverage ratio stood at 74.5%. The coverage is over 90% when including the effect of eligible collaterals. Stage 2 loans represented 10.1% of the gross loans with a solid coverage of 7.3%. Our financing book remains very diversified, encompassing all sectors, including government at 22%, real estate 22%, commercial lending 9%, consumer financing 9%, contracting at 4%, industry and manufacturing with 6%, and services and others about 29%. GRE exposures accounted for 17% of the total financing book as at the end of September 2025. GRE exposures are currently reported within their respective sector classes. Our capital adequacy ratio stood at 18.9%, well above the regulatory minimum requirement of 14.6%. Notably, the impact of interim dividends has already been factored into the reported CAR.
Regarding the developments on the topic of global minimum tax, Qatar introduced a 15% minimum tax for multinational groups in line with Pillar Two framework during the first quarter of 2025. While the enabling regulations are still pending, we have conducted an initial assessment and based on the same, we do not anticipate the group to be subject to a Pillar Two charge. We will continue to closely monitor any developments in this regard and update the markets accordingly. In summary, our nine months performance reflects the strength of our fundamentals, strategic clarity, and prudent financial management. We remain focused on sustainable growth, margin preservation, and long-term value creation for our stakeholders. With that, we now open the floor for your questions. Thank you.
Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from the line of Zohaib Pervez with Al Rayan Investment. Your line is now open.
Thank you, gentlemen, for the presentation. I have a question regarding your balance sheet and basically the loan growth. You mentioned that you're still looking at a single-digit loan growth for our financing book growth for 2025. However, in the first nine months, year-to-date, the loans are lower. How do you expect this? What is your strategy to have a growth at the end of this year? Because to have a mid-single-digit growth, that means your balance sheet or your loan book should grow by at least more than 5% this quarter. How do you expect to achieve this target? Thank you.
Thank you, Zohaib. I think we are persistently mentioning in our calls for last three times, in fact, it's mid-single-digit growth. Mid-single-digit growth, firstly, let me clarify, it should be somewhere in 3%-5% range. As far as the current trajectory is concerned, we are still comfortable to mention it mid-single-digit growth because it's a matter of timings actually. In first nine months, we saw certain repayments flowing through, certain early repayments or early settlements also flowing through. That affected the first nine months trajectory. However, there are deals in the pipeline, and I think we mentioned it earlier in the second quarter's call also that there are certain large-scale deals which are in the pipeline, which can materialize.
Sometimes the size of the deal and the way the administrative things get handled on those deals affects the overall timings and we end up closing the quarter. It's still in a comfortable position. We expect that the major contributors should be from the wholesale banking, especially the government sector deals, as well as the private banking deals. Plus these repayments since they were getting matured or certain loans were getting early repaid, so that had to go out of the books. However, the new inventory, as what you highlighted in terms of the overall growth, we still expect that the deals which are in the pipeline should get materialized before the year end and we can comfortably meet our target of mid-single-digit growth.
Sounds good. Okay. Thank you. Just second and last question is on your net financing income margins. Now that we have had one cut after some time, how do you see further cuts? How many further cuts does the bank expect, and how do you see your net financing income margins panning out post these cuts? Thank you.
Yeah. In terms of the margins, if you would have noticed in first nine months without any rate cuts as what we were mentioning, the historical rate cuts which happened especially in the Q4 of last year, they started to materialize. We saw some positive impacts. Our NIMs inched higher slightly. Almost nine bps got added in the NIMs in nine months, and that is mainly a factor of the last quarters, that is the Q4 of last year's rate cut. Going forward, it's difficult to say how many rate cuts and at what time it's going to happen. One we already saw in the month of September, specifically second last week of September, on 18th September precisely. Going forward, there is two or two meetings, which Fed meetings which are in the pipeline. Again, it depends on the circumstances.
There is a lot of gray areas which needs to be enlightened before things looks quite precise how the rate cuts will look like. If you see the dot plot on Bloomberg, it's varying on daily basis. It's difficult to estimate or even guesstimate. However, the stance which we always tell the market in terms of our NIMs and the rate cuts and the sensitivities, how they look like. With each 25 basis points-30 basis points, we see a rise in the NIM of 67 basis points on an annualized basis. Again, I'm very specific on this point that this is a very theoretical calculation based on which we determine that how much on a sensitivity basis, like with 25 basis points-30 basis points rate cut, we get a 67 basis points rise in the NIM on an annualized basis.
Again, the timings, the maturity profile of the assets, the repricing of the loans, as well as the rebooking or the repricing of the deposits takes precedence in the actual world. I hope I answered your question.
Sounds good. Thank you.
Your next question comes from the line of Salome Skhirtladze with Bloomberg Intelligence. Your line is now open.
Hello. Thank you for taking my question. I have actually two questions. On the NIM again, just to have a better idea on the sensitivity, assuming only one rate cut going forward or up to the year-end, what could that mean for your NIM upside? If you could quantify the sensitivity of NIMs. What is your medium-term ROE and profit growth target? If you could also give us the number. Thank you.
Thank you, Salome. In terms of the first question on the NIMs, you mentioned that there is one rate cut is expected. Again, I would be very much conservative on this one. Again, even if we consider the one rate cut, I told you on a spectrum of next 365 days, we should see on the last day a rise of 6 basis points-7 basis points with each rate cut of 25 basis points. You can estimate that at least in this next quarter, we should not expect anything on the rate rises. We already added 9 basis points in historical nine months of this year. We are in very comfortable position to close the year at a similar NIM. On your second question, in terms of the medium-term outlook for the ROE, it should match to the market basis, which is currently at 14%-15%.
Medium-term means in next five years term. That's the bank's strategy and target to achieve an ROE close to 14%-15%.
Thanks. Can I, just one thing to specify on the NIMs side. If we assume flat rates, if I correctly understand your NIMs right now, the level of current NIMs already incorporate all the results of the rate shifts, right? There is no lag effect, if I correctly understand.
The rate cuts of the last year have already been incorporated, most of them. However, the 18 September's rate cut, that's going to materialize as we move forward. Sometimes the loan gets repriced earlier than the liabilities. It depends on the timing when the rate cut is happening. Again, on theoretical grounds, with each 25 basis points-30 basis points, you tend to see 6 basis points-7 basis points rise.
I see. Thank you.
Your next question comes from the line of Abhinav Sinha with Lesha Bank. Your line is now open.
Yeah. I'm not sure if it's already answered, but just can you explain me the drivers behind the net fee and commission income and how we shall see it for the full year? Thank you.
Yeah. Thank you for your question. I think the fee income has been quite robust in this year, especially if I see the trajectories for the third quarter where we saw a significant rise in terms of the fee income. There has been again some ups and downs from one-offs, in fact. There has been certain early settlement fees which we booked because certain customers paid it early. That is a function of that. As far as a good reference point for you to take it forward in terms of your projections, I think the Q2 of 2025 should be a clean number with which you can take it forward with an addition of 5%.
Understood. Thank you.
QAR 4 million or QAR 64 million-QAR 65 million on quarterly basis.
Understood. Thank you.
Your next question comes from the line of Andy Brudenell with Ashmore Group. Your line is now open.
Hi there. Great. Thank you very much. Just on the fee side, just on the non-funded income side, actually. Was there a one-off in the third quarter there as well? If you could just talk about what, again, what the normalized level, maybe the normalized level of non-funded is nearer the first half, that would be useful, please. My second question is just maybe a little more color on the loan growth pipeline that you spoke about from the earlier question. Could you maybe give us a sense of just so maybe we can have an idea of what areas are you seeing this kind of activity and this kind of increased credit demand? What particular segments of your business or sectors within industry? That would be interesting. Also, what sort of visibility do you have?
Does this pipeline sort of see you clear, as you stated, to the end of the year, or does it also bode well for, say, maybe the first half of next year as well? That'd be great. Thank you.
Thank you, Andy. On the fees front, your first question, yes, there was one-offs, I can say. I think a good number for your future calculations or for the modeling purposes should be the second quarter of 2025, which was very much cleaned from the perspective of the one-offs. QAR 64 million-QAR 65 million could be a good number, and we can keep on adding on annualized basis 5%-6%, which is a natural growth. Yeah, I think this is more on the first question. Maybe second question, Osama will like to give it an answer.
Yes. Regarding the anticipated growth in the loan book, as Riaz earlier mentioned, 3%-5%, we are comfortable about this guidance from now till the year-end. As we mentioned earlier, we have been very selective in our expansion or lending policy. We have reduced our exposure, as you can see in this representation, to the real estate sector. The anticipated growth is going to come from industrial, GREs, and the government. It's going to be very selective kind of deals supporting the North Field expansion and supporting the GREs business relating to Ashghal and the other GREs. I hope this answers your question.
Yeah, great. Okay. Yeah, thank you for that. That's fine. Sorry, just on the first question, sorry. I meant the non-funded income. I heard your answer on fees, but also in the third quarter, it looked like there was some non-funded income that was a little bit higher than prior quarters. I wonder if you could maybe touch on that a little bit, please.
I think, yes, you're spot on. I think the Forex income also got doubled compared to the previous quarters. That was mainly a function of the volumes. We saw a rise in the volumes. There are certain FX swaps, where we realized it materially positively on that front. Other income also saw a rise. It's mainly a function of the hedging income which we realized. That's pretty much your treasury front office, FX. These are the key themes where we realized most of the income.
Great. Thank you.
There are no further questions. I will now turn the conference back over to Shahan for closing remarks.
If there are no more questions, we can wrap up this call. I would like to thank Dukhan Bank's management for giving us an update on the quarter, and we will pick this up again next quarter. Thank you.
Thank you, everyone. Hopefully we'll get in touch in January to take you through full year numbers. Thank you, everyone.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.