Hello, everyone. Thank you so much for waiting, and welcome to Qatar Islamic Bank conference call. Please note that this call is being recorded. I'd now like to hand over first to our first speaker for today, Shahan, you may now start the conference.
Thank you. Hello, everyone. I want to welcome you to QIB's Third Quarter 2023 Financial Results Conference Call. So, on this call from management, we have the Bank's CFO, Gourang Hemani, and Vinay Balakrishnan, IR Officer. So 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 Gourang. Please go ahead.
Thank you, Shahan. Good day, everybody. Welcome to the Q3 2023 results call for QIB. We'll quickly take you to the main highlights of our results, and as Shahan mentioned, then we'll open up for the Q&A. The bank has reported net profit attributable to shareholders of QAR 3,055 million for the nine months ended 2023, representing a 7.2% growth against nine months of 2022. The net profit attributable to shareholders for the third quarter is QAR 1,099 million, representing a 6.3% growth over this corresponding quarter last year, and 4.8% up against Q2 2023.
The total assets of the bank now stand at QAR 187 billion and are up 2% or QAR 3.5 billion versus second quarter 2023, and up 1.5% or QAR 2.8 billion against December 2022. The core banking activities represented by financing and activities continue to grow in third quarter of 2023. Financing assets, driven by private sector credit, now stand at QAR 122 billion, representing a 2% growth over Q2 2023, and 2.1% against December 2022 levels. Investment securities stand at QAR 47 billion, marginally below second quarter 2023, but up 3.5% on a year-to-date basis versus December 2022.
The customer deposits are at QAR 121.5 billion, up 3.9% or 4.6% against second quarter 2023, and marginally down against December 2022. On profitability front, the total income of the bank before cost of funding has reached QAR 8.095 billion for nine months ended 2023, against QAR 6.523 billion for corresponding period last year. At the same point of time, the cost of funds paid to the depositors and Sukuk holders of the bank reached QAR 3.326 billion, against QAR 1.73 billion for the nine months ended September 2022.
The bank has been able to maintain its net financing margin, represented by financing income less cost of deposits, both on a year-to-date basis as well as on the corresponding period last year, as well as on a sequential basis, sequential quarterly basis between third and second quarter 2023. Expenses for the nine months ended September 2023 have reached QAR 825 million, which is flat against the same period last year. Continued efficiency management measures enabled the bank to maintain its cost-to-income ratio at 17.3% for the nine months ended September 2023, which represents one of the lowest in the banking sector.
Continued strength in the operating performance enabled the bank to build precautionary expected credit losses on financing of around QAR 867 million for the nine months ended September 2023, maintaining healthy coverage ratios across all three stages of portfolio, namely stage 1, stage 2, stage 3, with largest allocations being made so far till stage 1. Impaired financing ratio was stable at 1.5%, with negligible new NPF generation in Q3, with a healthy coverage ratio of 95%. The results continue to demonstrate bank's ability to generate strong, stable, and sustainable profitability for its shareholders, with return on average equity above 16.5%, and return on average assets at 2.2%. I think I've taken through the key highlights. We can now open up the question and answer session. Over to you, Shahan and operator.
We can go to Q&A session now, please.
If you'd like to ask any questions, please press star and number one on your telephone keypad. That's star and number one on your telephone keypad. We have Aswath PT from Goldman Sachs. Your line is now open.
Hi, thank you for, and congratulations for strong quarter results. I have three questions from my side. The first is on NIM, to the extent where you can give details around that, but, what we have seen so far is like NIM being stable, slightly up quarter-on-quarter. I mean, I just wanted to have your thoughts around potential, impact from Fed hikes and how you see the... Or how you see NIMs going forward, especially into the fourth quarter. Second question is around loan growth. Again, strong sequential growth, around 3% quarter-on-quarter. Yeah, to the extent that you can speak about it, what your thoughts are around, loan growth for remainder of the year, and-...
Over the coming years, in terms of, like, which sectors you think are going to be the key drivers of growth going forward? Last question I have is on cost of risk. Again, down quarter-on-quarter, and QIB has shown like the best improvement in both stage 2 and s tage 3 are down. That's somewhat clear. I just wanted to know in terms of your outlook for customers for the remainder of the year, and also if your views around whether the QCB or the views from QCB in terms of the partial provisioning is probably coming to an end, or are they still being more conservative in terms of the provisioning or the request for provisioning going forward? Thank you.
Thank you very much. Apologies, I was hearing some ringing sound. I don't know if it came to you as well, but I don't know what some issue, but we'll take the questions going and answer them as the best. On the NIM side, as we had mentioned even in the previous quarter, that so far we have been successful in being able to absorb the higher cost of funding and passing it on to the customers. Looks like we are almost at the end of the rate hike cycle, maybe possibly one hike, so we on the Fed, we'll have to wait and watch how QCB will react to it.
I think in the last hike, the government, the regulator, the central bank, did acknowledge the fact that the rate hikes are becoming more and more difficult for the borrowers to absorb, and I think they exempted certain categories. We expect them to follow similar if there is a Fed hike, but the indications are that most likely we are done with it. So in that case, we don't see much impact on the NIMs going forward, and we hope to be able to maintain. However, I think, the...
While the asset repricing would have completed, I think the cost of funding may continue to face a bit of pressure, depending upon how the credit spreads really start impacting overall, depending upon how the recession story pans out in U.S. and the potential impact across the credit curve across the markets. But unless and until we have something very different, we are hopeful and looks like we should be able to maintain our NIMs, at least for the next one quarter or two. Will depend upon then how, as I said, the global economic outlook pans out accordingly. On the loan growth side, I think, yes, the Q3 has been, finally we've been able to see some growth. We had very, very, let's say, muted first half.
We had been putting in our investor calls in both Q1 and Q2, whereby we said we were expecting activities to pick up in the third quarter, and I think that's what we have seen. As we go to Q4, we might again see some uptick, especially given the fact that I think more will start coming from next year, with the government announcing about $20 billion worth of roughly infrastructure products that will be driven by Ashghal and Kahramaa.
We also expect the North Field Expansion effect trickle down into the private sector, because so far it is purely restricted to the government trying to work on the overall larger projects, and the local involvement of the private sector will start trickling in from first quarter of 2024 onwards. We were expecting some of them to happen this year, but so far we've not seen the effect. So that's the positive from the medium-term point of view. I think both the North Field Expansion and the continued initiatives by the government to invest in the infrastructure will continue to boost the private sector credit growth. However, it will still remain, I would say, on the lower side. We believe it'll be around 4%-5% somewhere on a good case scenario.
That's about 4%-5% would be the growth we expect on the private sector. Public sector, I think we're still not expecting the trend to reverse, whereby government will start borrowing from the banking sector. So what they've been doing since last almost 2 years now, let's say 1 year and 9 months, where they've been continuing to repay the banking sector, I think that trend will continue. But most of it has almost been repaid, except for maybe a couple of players who are predominantly focused on the public sector lending, which is not the case for us. So we believe the sectors will be the same one with terms of the contracting, in terms of services, industries, those are the services predominantly that will continue to see some growth.
But we'll have to wait. We are also expecting, maybe now, the government would have completed a lot of reviews in terms of what they were planning to do the next step forward towards the 2030 National Vision. So we hope to get more clarity besides the infrastructure spend in terms of where we go. I think that Qatar sits in a very, very comfortable situation in terms of the fiscal position, whereby, its ability to support and-...
Grow the domestic economy remains strong, especially given the fact that the medium term, the kind of revenue increase that the country would see, the GDP growth that would come in because of the North Field Expansion, would start benefiting the country, both in terms of ability to continue its diversification initiatives for international investments, as well as supporting the domestic economy. In terms of cost of risk, yeah, I think, what you see the trend in, as you rightly mentioned, that it, we see the cost of risk slightly moved down in the third quarter.
I think this is in line with the bank's trend that you keep seeing, that whereby we tend to load up the provisioning at the beginning of the year, and then as we keep going through the year, we keep evaluating how our asset quality is evolving, and try to adjust our provisioning levels accordingly. As you have seen, our NPL generations so far has been pretty muted for this year, allowing us to reduce the cost of risk. We'll keep evaluating.
In the Q4, we normally in Qatar, you have the QCB reviews that come up, the central bank reviews that come up, and then based on our discussion in terms of how they perceive the overall economy and certain specific sectors or players, we may continue to adjust our cost of risk or maybe just more about allocation of the cost of risk that we have taken this year to the relevant more specific names, whether it be in Stage 2 or Stage 3, as we keep going. However, we're not seeing a significant uptick in the Q4 at this point of time. I hope this answers the questions?
Yes, thank you very much.
Thank you.
Our next question is gonna come from Aybek Islamov from HSBC. Your line is now open.
Yeah, thank you for the conference call. I think, couple questions. Can you remind us what's the share of public sector loans for you at the moment in the total loan book? I believe it has fallen. Can you remind us where you were about a year ago? That's the first question. And secondly, yeah, your write-off ratios, if I understand correctly, they've been quite low. Do you expect them to pick up at some point? And what could be the trigger for rising write-offs? Do you need to reach certain provision coverage targets? And where would you see your write-offs, and how could that impact cost of risk as well, if you can comment on this?
Okay. I think our, at this point of time, our government-related exposure is about 7%. It's been. It's gone, dropped marginally compared to December at 7.5%. Early last year, 2022, beginning of 2022, it used to be somewhere hovering between 12%-13%. So that's where I think we've seen the repayments, majority of the repayments that happened last year and some small repayments that have happened since the beginning of the year. But, most of it is now our, longer term, specific projects and other related financing that we have. So it's still. As I said, we, we've always said that we are the largest private sector bank, being the way we focus predominantly on the private sector. That goes to say that 93% of our loan book is on the private sector.
On the write-off, I think the write-off is more in terms of not driven by anything related to provision coverage requirements. I think we are at 95% coverage that we have. So we have very, let's say, it doesn't have any cost of risk implications if we were to do any write-offs. However, write-offs are more in terms of determining whether we have exhausted our ability to recover from the client, and we need to take necessary central bank approvals before we are able to continue with any write-off processes. So there are a few names that are under discussion, but again, they're not. We don't expect any significant write-offs at this point of time.
Even if it were to happen, it doesn't have any implication on our cost of risk or profitability, given the fact that we are adequately provided for our Stage 3 at 95% and above. Hope that answers your question, Aybeck?
Yeah, it does. Yeah, it does. And can you just... A follow-on question, third question, last one. Can you remind us why you have such a very good coverage of Stage 1 loans? This is something which is specific to Qatar Islamic Bank. Is this because of the characteristics, the loan portfolio or... Yeah.
It's very simple. We've been telling this since last couple of years, that I think if we are going to have good operating performance, we will continue to build precautionary provisions. I think that's more of the precautionary provision. I think but as we go, we will see, we, you will see that majority of the cost of risk that we have built so far this year, we will end up allocating it either to stage 2 or stage 3, or we'll refresh our models to see whether we need whether we need more in stage 1. But I think more...
As we go through QCB review process, etc., we will see that we will be allocating some of the stage 1 ECL to stage 2 and stage 3, because we are slowly crossing the point of time where the implications of COVID, etc., have now more been absorbed within the within the portfolio, and we have a better understanding. However, we continue to remain cautious. I think we see further challenges coming up going forward, overall, on a systemic basis, when the interest rates rises and the when, when, where, that's where the borrowers might feel an impact on the ability to absorb the higher costs of funding. So that is a pressure point.
I think we as a bank happen to be in a little bit more comfortable position to be able to absorb those risks if they come up, by not not impacting directly our profitability, thanks to the cautious provisioning that we have been following over the last few years.
Mm-hmm. Thank you. Very helpful. Thank you.
Thank you.
Ladies and gentlemen, if you'd like to ask any questions, please press star and number one on your telephone keypad. That's star and number one on your telephone keypad. Seems like we don't have any questions coming in right now. Oh! We have another question just came in from Nikhil Pruthane from PBHS. Your line is now open.
Well, sir, thank you. Just the last one, few question. You've quite completely answered all the questions nicely. Just one thing, I mean, going forward in the fourth quarter, you did mention, you know, where you, well, you have taken the buffer for your provisions. But at the same time, you know, looking forward, given the fact that, you know, your loan growth is also important along with it, how do you foresee, I mean, in terms of loan growth on one side and, you know, spread on the other side? I mean, how you will... Because I believe that to a certain extent, your margins, I mean, in terms of your, spreads, has come slightly down.
So how you see forward your strategy in terms of, you know, especially in the light that LNG could be going further, maybe in the second quarter also. So for the next quarter and then maybe in the first quarter of 2024, how you foresee that? How you strategize yourself, loan book growth against the, the spreads? Thank you.
I think, you know, we have always mentioned that, you know, we have been a very cautious bank in terms of our asset growth. I think we were fortunate enough, I think, over the last, the first half of the last decade, in the last, let's say, last... We've been able to capture a decent market share, and that has allowed us to little become much more selective in terms of what kind of asset underwriting that we do. So we do keep into cognizant in the fact that both in terms of what is the funding cost as well as the impact on the asset quality that is going to come in, because of any new loan book that we may underwrite.
But I think, at this point of time, we are not desperately chasing growth. We continue to remain selective, like the way we have been. And, we still believe that, yes, there could be... If in this market, I don't think so there could be is going to have a significant, let's say, NIM implications while everybody is keen to book assets. I think, everybody eventually realizes where the cost of funds are heading and there, where, what would be the fair pricing of certain loans. Yes, there could be odd cases where some players might try to get certain loans et cetera, and try to price them at, let's say, non-market rates. But I really don't think so they really move the needle in general.
Even if you get let go of those asset, growth, opportunities, it really doesn't hurt. So we continue to remain, as I said, we are not expecting any significant growth, as I already mentioned, that even our 2024 target, we expect between 4%-5% at this point of time. We are still going through our, let's say, planning process at this point of time, and we'll have a better idea as we go into the fourth quarter and we finalize our plans for next year. But in general, we expect the loan growth to be 4%-5%.
A small growth coming in the fourth quarter, but in general, what we see is that last one or two months, usually we see a slowdown in activities everywhere. And given the fact with all the various geopolitical challenges that are coming in and with the uncertainties related to the Fed hiking cycle, I think you would see Q4 growth not being very strong as such on the asset book. I think 2024 looks more promising compared to where we stand at this point of time than what we were seeing maybe three to six months back.
Hmm. Thanks, sir. I mean, you're giving a very detailed plan. Hopefully, I think you have compared against your peers much better in 2023 also. So wishing you best of luck, sir. Thank you.
Thank you very much.
... Our next question is gonna come from Adnan Farooq from Jadwa Investments. Your line is now open.
Hi, thank you for the call. I have a couple of questions. Firstly, on the real estate market, if you could give us some color on the real estate market in Qatar right now. At last call you mentioned there was some overhang related to inventory that was still held with the government. If you could give us an update on that and specifically about your exposure to real estate. And my second question was related to your outlook on your cost. You have been amazing when it comes to cost control. How should we expect costs going forward? Should we expect a slight growth, or you expect cost-to-income ratio to continue to be in the same range going forward as well? And the last question is on fee income.
Fee income picked up, as you had previously mentioned in the second quarter call, that second quarter was impacted by the Eid break. Third quarter, it has picked up. Should we expect a mid-single-digit growth in the fee income line going forward? Would that be a fair assumption in line with loan growth?
Thanks very much. So I'll take one at a time. So on the real estate market, I think not much has changed, to be very honest. I think we continue to see where in certain segments, especially on the commercial real estate side, the inventory continues to remain high. On the residential side, I think normally the bigger impact is felt during the summer breaks, where, you know, normally lot of opportunities where people move out and change houses, et cetera. And that's where we tend to see the real impact on the rental side of it. We see marginal corrections on the rentals, but we've not seen any significant drop in the rental market.
That goes to show that the real estate market has been able to absorb a large part of, let's say, supply-related pressures that could come in on the rental side and the valuation side. So I would say we remain cautious, but at this point of time, there's nothing that is, let's say, clearly that poses a significant risk at this point of time. On the cost of costs of operations, I think we've been—we take pride as an organization, not maybe sometimes personally, but maybe pride as an organization, that we remain a very cost-efficient entity. I think we do control the costs, overall costs.
I think, to be very honest, while the overall costs may appear to remain flat, you might see that there is a change in the cost line. You see the cost of staffing has gone up slightly while other costs have gone down. I would just remind you that last year we did have exceptional spend related to FIFA. That's what has really, which is not repeated this year, has been able to allow us to absorb a bit of the normal cost increase that would happen in the regular operations. So that bit of benefit has helped and make it appear that we are flat. But yes, we did have a normal growth in our expenses on the regular operating side of it.
I think we should be able to maintain it, right? So we do believe that overall, the cost-to-income ratio, we might be able to maintain it or maybe, you know, we are at levels where it is. We can afford to spend slightly more. At, you know, when you are at about 17.3, 17.4, 17.5, I think we do have room to make spend, which will eventually help us in improving the revenue. So I think that's the benefit that we carry. But it remains a primary. Cost discipline is one of the primary, let's say, management objective.
As I keep saying, right, you know, we do challenge each and every spend and try to make sure that they are really justified. On the fee side, I think, yeah, as I said, we told you that, you know, one, do not make any assessments on a quarter-by-quarter basis. You have the holiday-related impact that come in. You have impact that come in from our investment banking business from QInvest, which is our subsidiary, where, you know, they are predominantly into advisory role, kind of a business, which are success fees, et cetera. So you could have a bit of quarter-by-quarter, you could see some movements that could come in, but that...
I think we keep saying, "Please build a trend based on a year-to-date basis rather than on a quarter-to-quarter basis." We've seen a single-digit growth happening, and we continue to believe that our efforts that are going on in terms of how we are going to improve the share of our fee income.
Let's be very honest, we as an organization believe that we have some room to catch up vis-a-vis some of our peers into on the fee income side, and we are definitely making efforts, especially on the corporate side, where you could go ahead and change your tariffs, while retail tariffs are more governed by central bank, and you need to have specific approvals from them and have to be within the limits set up on various fee types by the regulator. We are working on some of them, working on certain initiatives that is going to help on the fee side of it.
Yes, loan book is one of the indicators on the, or the, let's say, factors that contribute towards the fee, but there are other service-oriented fees that we are focusing on to be able to generate a stable growth in that line of our income.
Thanks so much.
Thank you.
Our next question is gonna come from Aybek Islamov from HSBC. Your line is now open.
Scenario where if interest rates stay high for longer, what do you expect your margin to do? Do you think it will be quite difficult to grow your margin, or you still see room to increase your asset yields? I think your funding costs actually are doing quite well, right? So the increase in the funding cost is slowing down quite a bit this year.
But I think, as I said, and unfortunately, because the way the interest rate margin scenario is there in Qatar, I think higher interest rates have not been really beneficial for improving the margins. We have not improved our margins significantly at all. So we do not expect any margin impact coming when the, you know, in going forward, especially that we believe that the rate hike cycle is almost done. I think it. We are focusing on our ability to maintain margins. I really don't think so there's much scope to improve margins at the current levels. There's a limit up to which you can pass on the cost to your borrowers, because I think then it starts having an impact on the asset quality.
So you need to strike the right balance in terms of what is the right level of pricing that you can charge to customers, while the cost of funding is market driven. So, I, let's say, higher for longer doesn't give us much of the, let's say, ability to really bring it down the cost of funds. So yeah, the NIMs will remain challenging to maintain, but I definitely don't see much room to improve at all. I think you can yourself see, if you follow the market, that if you take the U.S. dollar benchmark rate, they are definitely so, let's say, volatile, if you look at it. Within one month, you have the five-year U.S. Treasury moving up from 4.5 to 4.9.
So that goes to show you that it's going to be difficult to bring down the cost of funding, and then there is a challenge in terms of amount you can pass it on to the customer. So, yeah, I believe ability to maintain NIMs, I think would be a very decent achievement for any player, whether it be us or any other player in the market.
Understood. If you see rate cuts, I presume you're gonna see it as a positive for your margins, right? Because you are likely-
I wish the rate cut... I wish, I wish there are rate cuts, but the market doesn't, so I do not want to put on a fall and build on something which is on a, which doesn't look to be realistic at this point of time. So, yeah, no. We believe any rate cuts, if it's going to happen, will happen in Q3 or Q4 of next year, which is not going to have any much impact on the profitability of next year as well. So, yeah, we want to work on a conservative scenario whereby the rates will remain at the current levels, and that the ability to improve NIMs remains limited, if at all, none.
Mm. Thank you.
As of right now, we don't have any other incoming questions. I'd now like to hand back over to the moderator for the final remarks.
Great, thank you. Okay, so, since there are no more questions, we can wrap up this call. Thank you, Gourang, for giving us an update on the bank's performance, and we'll pick this up again, next quarter. Thank you.
Thank you very much, everybody.