Hello, everyone, welcome to QNB Dukhan Bank conference call. Please note that this call is being recorded. I'd now like to hand over to Shahan. You may now begin.
Thank you, Ellie. Hello, everyone. I want to welcome you to Dukhan Bank's fourth quarter and fiscal year 2024 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 Head of Investor Relations. 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, so much. [Non-English content] , everyone, good afternoon. I'll begin with a brief overview of the global domestic macroeconomic trends in the fourth quarter of 2024 before diving into our financial year 2024 results. Afterward, the team will walk you through the group's performance, followed by the usual Q&A. On the domestic front, Qatar's outlook remains highly favorable. Stable oil and gas prices have continued to underpin robust physical and current account surpluses. The momentum is constructive, with many sectors showing resilience and significant potential for future growth. Worth mentioning that during this quarter, Qatar Central Bank also reduced the benchmark rate by 60 basis points, taking total rate cuts for the year to 115 basis points. Going forward, this should have a positive impact on the overall economy, [Non-Engish content].
A standout example in the tourism sector, where Qatar is set to record its highest-ever tourist numbers this year. Having welcomed nearly 3.6 million visitors in the first nine months, that's a 26% increase compared to the same period of last year. This demonstrates the tangible progress of the nation's diversification strategy, bringing Qatar closer to its ambitious goal of attracting 6 million visitors annually by 2030. Moreover, the government's proactive initiatives to stimulate non-hydrocarbon activities are showing significant promise. These include support for startups, emerging businesses, and reforms, such as a 90% reduction in the rental value of Ministry of Municipality land in the industrial zone allocated for commercial use. Additionally, the launch of the real estate strategy in December further solidifies Qatar's position as a premier investment destination.
Another prime example of Qatar's diversification effort is the QAR 20 billion Simaisma tourism project, where the foundation for The Land of Legends, a transformative development valued at $3 billion was laid. This project is a pivotal step in further strengthening Qatar's stature as a leading regional and global tourist destination. Looking ahead, Qatar's energy sector remains a critical driver of growth. The North Field Expansion project and significant expansions in refining and petrochemical capacities are poised to support medium to long-term GDP growth. Notably, much of the anticipated LNG output increase is already secured through long-term contracts, providing a stable foundation for sustained progress. Beyond energy, Qatar's focus on infrastructure, digital transformation, and economic diversification aligns with its Vision 2030, stimulating growth across sectors like services and manufacturing. Now, at Dukhan Bank, we take immense pride in our record-breaking performance this year.
Despite external challenges, we have demonstrated resilience and innovation, solidifying our role as a key contributor to national progress. Despite external challenges, we have consistently upheld institutional stability, further cementing our position. Now, turning to the group's financial performance for the year 2024, I'm pleased to report record results as we reported highest-ever net profit of QAR 1.34 billion in the bank's history, reflecting a 3% annual growth. Our return on tangible equity remained robust and increased to 11.1% up from 11% last year. The group's total assets reached QAR 117.9 billion, remaining at historic levels. The bank achieved an impressive yearly growth of 11% in financing book. Our liquidity position remains robust. This was underscored by the successful issuance of our $800 million five-year senior unsecured Sukuk.
This is by far the largest issuance by a Qatar Islamic bank since 2020. Our capital adequacy ratio is comfortably above regulatory requirements, standing at 17.3%. In recognition of this outstanding performance, the Board of Directors has proposed an additional cash dividend distribution of 8% of the nominal share value, equivalent to 8 dirhams per share. This is subject to the approval, of course, of Qatar Central Bank and shareholders at the annual general assembly meeting. The proposed dividend, combined with the interim dividend, takes the total dividend distribution for the financial year 2024 to 16% of nominal share value, equivalent to 16 dirhams per share. With that, I will now hand over to Osama to provide further details on our financial performance 2024. Over to you, Osama.
Thank you, Ahmed, and welcome everyone. I will start with the group balance sheet. Total assets currently stand at the record levels of QAR 117.9 billion, composed of financing assets of QAR 86.2 billion, 73% of our total assets. The investment portfolio follows closely, reaching almost QAR 19.9 billion, 17% of the total assets. During this year, the bank successfully expanded its financing assets, achieving an impressive 11% growth compared to the previous year. This growth mainly come from wholesale and private banking sectors. Such a growth underscores the bank's strategic intent to increase its market share while ensuring efficient and balanced resource allocation. Our balance sheet is mainly funded by customer deposits, representing about 81% of total liabilities and totaling QAR 83.4 billion. This is followed by market funding, including Sukuk issuances, contributing 17%.
The group liquidity remains robust, with regulatory loan-to-deposit ratio at 98.6% and LCR above 167%. Our reliance on non-resident deposits is limited to 2.3% as we continue to cultivate strategic and generational domestic relationships. We remain committed to safeguard our profit margins and to efficiently manage the cost of funds. In this regard, net profit margin has been maintained at around 2.1%. There has been a 10 basis points growth noted in our NIM on a year-on-year basis, meeting our targeted NIM anticipated for 2024. Moving into profitability, the group financial performance during the year demonstrated the execution of our strategy, a strengthened platform for future growth. The bottom line growth in profitability was underpinned by 11% increase in net income from financing activities and a 14% rise in net income from investing activities, resulting in an overall rise in total income for the group, which grew by 12%.
Growth in net income from financing activities reflected positive momentum in overall volumes coupled with better yields. The group efforts to cross-sell coupled with deepened client relationships while leveraging differentiated product strength, fostered consistent growth in both profit and non-profit income resources. Now turning our attention to credit quality. The non-performing loan ratio improved to 4.6%, decreasing from 5.4% last year. This improvement is largely attributed to the bank's effective recovery management, reflecting robust credit risk management practices. Additionally, the stage three coverage ratio reached 73.1%. Here, it is important to point that if we consider eligible collateral benefits after taking the effect of QCB prescribed haircuts, the stage three coverage ratio would be approximately about 95% against the NPLs, reflecting the group's prudent approach towards managing non-performing loans and the related provisioning.
The staging of financing activities aligns well with the industry standards, where we managed to reduce stage two percentage to gross loans at 9.5%, with a decent coverage of 5.3%. Our financing book remained well diversified across all sectors, including government at 20%, real estate 24%, commercial 9%, consumer 9%, contracting 4%, industrial manufacturing 3%, services and others about 31%. The group capital adequacy ratio at the end of 2024 stands at 17.3%, exceeding well above the minimum regulatory requirement of 14.6%. Looking forward to 2025, we project a sustained growth trajectory, anticipating a mid-single digit expansion in our balance sheet that aligns with the overall GDP growth for the country. The drivers of this growth will be wholesale banking and private banking segments, with our growth strategy emphasizing quality over quantity.
Regarding our bottom line profitability, we foresee a comparable mid-single digit growth mirroring the expansion in the balance sheet. On the margins front, with the Fed and QCB announcing multiple rate cuts in the latter part of 2024, coupled with the inflation data showing consistent downward trend, hinting at a possibility of further rate reductions, we anticipate relief in our cost of funds. This is expected to support a favorable margin evolution moving forward by 15 basis points. Assets quality, we anticipate no significant deterioration in assets quality, but our approach in provisioning remains conservative. We will continue to build adequate buffers to safeguard against unforeseen adversities and expect our cost of risk to be in the range of 50 basis points- 60 basis points. In summary, we look to the future with confidence and ambition.
We reaffirm our commitment to building on our strengths, pursuing new growth opportunities, and expanding our market share, fostering innovation and delivering greater value to our stakeholders while protecting our NIMs and maintaining robust liquidity. I would like to open the Q&A session. Thank you.
Thank you. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. That's star one on your telephone keypad. Your first question comes from Zohaib Pervez from Al Rayan Investment. Your line is now open.
Thank you, gentlemen, for the presentation. I've got two questions. Firstly, your fixed foreign exchange income has been more than QAR 100 million over the past four or five years, but this year it came down to about QAR 50 million. Could you tell us what changed that the foreign exchange income came down, and how do we see this going forward, this revenue item? My second question is on your guidance. This year, your balance sheet has grown by 11%. You said your loans have grown by 11%. You're expecting any expansion of your NIM. Don't you think the bottom line growth of mid-single digit is being very conservative? Thank you.
Okay. Starting with the FX income, as you know, FX income is driven by trade business, LCs, et cetera, and that has witnessed a drop during the year due to several reasons. Secondly, the main currency where we generate FX income is the US dollar, and as you know, there has been a cap by the Qatar Central Bank on the exchange that we can charge our customers. These are the two main reasons for the FX drop during the year. Regarding the guidance, it could be conservative, but as I mentioned, we have to build our provisioning buffers. That's why we anticipate a mid-single digit growth in our bottom line. That's the main reason, because we will maintain a 50 basis points- 60 basis points cost of risk. Thank you.
Okay. Thank you.
Your next question comes from Alessandra David from Ashmore Group. Your line is now open.
Hi. I just had three questions. I think the first one may be following on from the last about asset quality. You've had some quite good improvement in asset quality across stage three and stage two loans. Could you maybe talk a little bit more about the drivers behind it and what we can kind of expect in 2025, kind of just trying to marry together the remaining conservative on the cost of risk yet the improvement we've had thus far in the year. My next question is on your cost management. Your cost to income ratio has been flat versus 2023 with a bit of a pickup in OpEx in the last quarter. If you could maybe talk about what was behind this and what we could expect in 2025, that'd be really helpful. Last question is just on the NIM.
If you could just remind me on your NIM sensitivity and maybe what you are in-house sort of assuming on rate cuts in 2025. Thank you.
Thank you for your questions. Starting with the assets quality, what has happened in stage two, if I understand your question correctly, we have some collections, and we have some reclassifications from stage two to stage one. As you may know, once an asset is classified at stage two, it can be reclassified to stage one after maintaining certain criteria. The most important one is the approval from the Qatar Central Bank, where we put the asset for two years under monitoring, and we make sure that the reasons for moving it initially to stage two have disappeared. These are the main reasons for the improvement in stage two asset quality. We anticipate the same trend next year, but with a less percentage. We anticipate stage two to further decline, but not with the same pace that we have seen in this year.
In terms of cost to income, yes, it has been flat during the year, while we have seen an increase in the cost base in the fourth quarter. This is mainly for three reasons. Number one, as you know, we firmly close the records in Q4 where we recalculate the end of service indemnities, the accruals, the bonus pools, et cetera. That's why each and every year in the fourth quarter, you will find a little increase compared to the previous quarters. During the second part of the year, we have moved our offices to a new head office that's owned by the bank. We had some increase in the cost relating to commissioning, testing, cleaning. Once you move to a new building, you incur some costs. These are the main reasons for the increase in the cost next year.
I anticipate a decline in our cost to income, but it will be very marginal. In order to be the safe side, I expect it to be flat. The first question about the NIM, we have budgeted for or we anticipate a 50 basis points rate cut next year, and that will correspond to a 15 basis points improvement in our NIM.
Thank you.
Thank you very much. Question comes from Salome from Bloomberg Intelligence. Your line is now open.
Hello. Thanks for the call. I have two questions. The question number one on the funding side, how do you plan to fund the loan growth? Whether you see any movements in the deposit base and given the interest rates will remain high at least in the first half of the year. The second question is on the coverage level, what is your target coverage for 2025 for the loan portfolio? Thanks.
Thank you, Salome. In terms of the funding side, as you have noticed in this year, we have made sure that the loans to deposit ratio remain within the regulatory limits, that is 100% mark. Across the quarters, we have ensured either we remain very close or we are below the 100% mark. I think that is an assurance for you that going forward even, we'll continue with the similar trends and with similar targets. Presumably, this answers your first question in terms of liquidity. Even the LCR has also improved this year compared to the last year that you might have noticed in the financial statement disclosures. That is again, a positive sign from the funding perspective. In terms of your second question on the coverages, I think we are going in the correct direction.
We started the year with 70%, improved it to almost 73% on stage three, then also increased our coverage on stage two portfolios. Even going forward, we will be continuing to build buffers conservatively for any unforeseen adversities. I think the target, it should be somewhere in a range of 80% mark on the stage three and on a medium term, not on the short term or next year, the stage two coverage, we will try to improve it further also.
Thank you.
Your next question comes from Abhinav Singh from Lesha Bank. Your line is now open.
Actually, just wanted to confirm, what's your guidance on the cost to income for 2025? Second, I have a question, if we look at your impairment for the year, there was a big movement in the recovery because it moved from QAR 155 million to roughly QAR 400 million. There was also a big jump in the charge for the year. Recoveries are like, again, they are not very certain to be fair. How should we look at these numbers for 2025? Thank you.
Yeah. I'll take your second question first, and then we can move to the first one. In terms of recoveries, these are something which are unprecedented, which nobody can estimate or even guesstimate or plan it, because there are external factors linked to it. There are court cases around it. Like, as we mentioned, in the budgets, when we do the projections, we don't assume any recoveries. If something comes up, that can be easily translated back to the provisions by building buffers, as I mentioned in my previous answer. Like going forward, as Osama mentioned, the target is somewhere 50 basis points- 60 basis points in terms of the cost of risk. That target, we will continue it with an assumption of zero recoveries. If any further recoveries comes, that can be translated back to the provisions.
On your first question, if you can repeat your first question, please.
Yeah.
The cost to income ratio. Sorry for that. Cost to income ratio, as Osama mentioned, we expect or we would love to have a lower trend on the cost to income ratio, but that could be very minimal moves compared on a year-on-year basis, but in medium terms, we will be very much closer to the 30%. On the next year guidance, it could be flatter or slightly less.
Understood. Thank you.
Your next question comes from Haya Al Fulaij from NBK. Your line is now open.
Hello. Congratulations on a strong performance this quarter. I was just wondering what sectors contribute to your stage two loans. Would you be able to answer that?
Yeah.
Hello?
Yeah, I can hear you. In terms of the stage two composition, I think it's pretty much diversified. It's not heavily concentrated in one of the sectors. If I look into a bit more details, I see the largest contributor, which is very much close to 20%, is the real estate followed by consumers, which is another 20%-25%, and the rest is pretty much in services, others, commercial industry, contracting, even in there. It's very diversified in terms of the concentration of the stage two.
Okay, thank you.
As of right now, we don't have any pending questions. I'd now like to hand back to the moderator, Shahan, for his final remarks.
Okay, great. If there are no more questions, we can wrap up this call. I'd like to thank Dukhan Bank's management for giving us an update on the quarter and the year, and we can pick this up again next quarter. Bye-bye.
Thank you, Shahan. Bye-bye. See you, guys.
Thank you for attending today's session. You may now disconnect. Have a wonderful day.