Hello. Welcome to the Qatar Islamic Bank call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Shahan Keushgerian to begin the conference. Shahan over to you.
Thank you, Gavin. Hello, everybody. I wanna welcome you to QIB's fourth quarter, 2022 financial results conference call. On this call from company's management, we have the bank CFO, Gourang Hemani. As usual, we will conduct this conference with first management reviewing the company's results, followed by a Q&A session. I will now turn the call over to Gaurang. Please go ahead.
Thank you, Gavin. Thank you, Jahan. Good day and welcome all to the Qatar Islamic Bank 2022 annual results call. 2022 were a historic year for the state of Qatar. The FIFA World Cup 2022, the world's largest sporting event, provided an opportunity to introduce Qatari culture and traditions to the rest of the world. Its flawless execution enabled Qatar to again, showcase its ability to deliver on the world stage. As we all know, 2022 started with strong positive COVID reopening for global economies, further adding inflationary pressures that reached historic highs and resulted in sharp and unprecedented monetary action by central banks across the globe. From the regional and economic perspective, Qatari economic perspective, hydrocarbon prices on an average were much higher in 2022 compared to the previous 2 years amid the sharp demand recovery and other geopolitical events.
Improved fiscal position and higher state revenues translated into improved liquidity in the Qatari banking system, it came at the cost of contraction in the public sector credit facilities. As regards QIB, we were again able to successfully navigate through the fast evolving economic environment with net profit attributable to shareholders exceeding QAR 4 billion for the fiscal year 2022 compared to QAR 3.55 billion for 2021, marking an increase of 12.7%. With the basic earnings per share of QAR 1.62 compared to QAR 1.42 as at 31st December 2021, the QIB board of directors proposed a dividend distribution to shareholders of QAR 0.625 per share.
That is 62.5% of the nominal share value, subject to the approval of Qatar Central Bank and QIB's general assembly. The total assets now stand at QAR 184 billion as at 31st December 2022, and financing assets at QAR 119 billion. Customer deposits were QAR 122 billion, resulting in financing to deposit ratio of 95%, reflecting the bank's strong liquidity position. The total operating income of the bank, net of the funding cost, reached QAR 6.4 billion, representing an annual growth of 6.5%, while the operating expenses were managed at around QAR 1.1 billion with an annual increase of 2.5%.
As such, the bank was able to further improve its efficiencies and bring down the cost to income ratio from 18.1% in 2021 to 17.4% in 2022, which is the lowest in the Qatari banking sector and one of the lowest in the region as well. QIB was able to manage the ratio of Non-Performing Financings assets to total financing assets at 1.5%, lower than 1.8% as at 31st December 2021, which is one of the lowest in the industry, reflecting the quality of the bank's financing asset portfolio and its effective risk management framework. QIB continues to pursue conservative impairment policy, maintaining a healthy 95.4% coverage on its Non-Performing Financings assets as of 31st December 2022.
The bank also continued to create precautionary impairment charge on financing assets for QAR 1.2 billion for the year 2022 to further strengthen its ability for any to manage any potential long-term impacts of the pandemic and continued inflationary conditions on different business industries and segments. The total shareholders' equity reached QAR 23.3 billion, with total capital adequacy ratio under the Basel III guidelines reaching 19.9% and common equity Tier 1 ratio at 15.8%, both up 1% compared to last year and well above the regulatory minimum requirements prescribed by Qatar Central Bank and Basel Committee. With this, I complete the brief introduction of the annual results. We'll start with the Q&A session. Back to you, Gavin and Jahan.
If you wish to ask a question, please press star followed by one. Star one followed by star on your telephone, and you'll be announced. That is star one if you wish to ask a question. Your first question comes from line of Chiradeep Ghosh of SICO . Please ask your question.
Hi, this is Chiradeep Ghosh from Bahrain. First, congratulations for a great set of results. My first question is related to the asset quality. In contrast to your other peers, your asset has been quite resilient. Just want to get a sense that, it's as we are seeing it, or we might see some deterioration in domestic asset quality going forward as your other peers have seen. That's one. Second of all is, what would be your outlook for the loan growth going into 2023? Are you seeing project pipelines again picking up? These are my two questions.
Thanks, Shiro. I would not be able to comment on my peers' asset quality, from our perspective, I think we follow extremely conservative risk management, try to identify any potential problem assets and try to adequately provide for them. As we said, we just coming out of the COVID, I think, with all the various incentives and the other benefits that were being provided to the lenders going away and with the interest rates moving up, putting pressures on the servicing, debt servicing for certain corporate and retail customers. We believe that we might have some more time to see the impact, so very difficult for me to guide you on where the NPLs are.
All I can say at this point of time, we have identified all the potential problems and try to adequately take care of them. We did on a conservative basis on our own downgraded few customers from Stage 1 to Stage 2, which you would have seen in the results for the Q4. That was the change compared to the Q3 results. As regards on the loan growth for the coming 2023, again, we're just coming out from a very slow period, so the pipeline continues to remain a bit slow. The government has been paying majority of their short term facilities that they have from the banking system in general, including QIB.
That's, that's almost behind us, so now what we should start seeing is that we should see some pickup happening. Not sure whether it'll come in Q1, but I think from Q2 onwards, we should see a better credit growth coming. We still are very, let's say, conservative in our plan. We believe that the industry asset financing book would grow at least on the private sector side by around 5%-8%, anywhere in between the those. We, we expect to maintain, our market share on those and have planned our growth in a similar way as well.
Thank you. Just one quick one technical question. At the Stage 2 deferred profit ICs around QAR 7.3 billion, how should we see it? I mean, is there any concerning in that?
The deferred profit is all about the profit that the customer has to pay over the life of the financing. It's not something that is due today. The best way to look at it would be the net exposure rather than looking at it as the gross and the deferred. It's because we as an Islamic bank show the lifetime profits which the conventional banks don't reflect on their gross numbers.
Okay, that's very clear. Thanks a lot.
Thank you.
Once again, to ask a question, please press star followed by one on your telephone and wait for your name to be announced. Your next question comes to line of Waleed Mohsin of Goldman Sachs. Your line is open.
Thank you much. Good afternoon. Thank you for the presentation, the opportunity to ask question. Couple of questions from my side. First, if you could comment on the trends that you're seeing on the margin side. The reason why I ask that is, loan growth was relatively muted for most of 2022. Want to understand, you know, what kind of competition you're seeing on the private side. On the funding side, there was a push to increase the share of resident deposits. If you're seeing any pressure on the deposit, cost of deposits, that would be very helpful. My second question is a follow-up on asset quality. You mentioned you did take some precautionary provisions.
If you could talk about sectors, where you took provisions or if you could talk about sectors which, are seemingly vulnerable or worrisome, that would be very helpful. Thank you.
Waleed. Sorry. Can you just repeat the first question that you asked?
First question I was asking about pressure on margins, if any, both on the lending side and the deposit side.
Okay.
Yeah.
Fine. On the NIM side, I think as you've seen, as the market interest rates keep going up, the cost of funding usually is the first to react and then the asset pricing, as we've always been saying on the lending side, there's always a lag effect. As we kept going into the end of the year, we did a lot of catch up, and that's what is reflected. I think overall, if you take our 2022 NIMs and compare it with the 2021, in fact, we've been fairly stable, in fact, been able to improve them marginally as well. From that perspective, I think we've been fairly quite.
We were expecting that the NIMs would come further under pressure, but so far they seem to be holding up, and we don't see any reason at this point of time where they will be significantly impacted as we keep going. As you said, on the question that what would be the impact on the balance sheet has really the financing assets have come down and how do we see the impact of it? If you see the most of as we had been telling and we have been repeating, and if you look into comparing to our exposure in the government sector for 2021 and 2022, you'll see that that's where the, where there have been a major repayments not only for QIB but across the entire banking sector.
In general, that, yeah, as I've been saying that these do not look good from the top line perspective, but from the NIM perspective, they actually are more beneficial because these facilities were anyway very low priced facilities. With the way the interest rates have moved up, I think those repayments have kind of helped in improving the NIMs and overall the net profits as well. Carrying some of those facilities at those levels would have actually been detrimental to the NIMs and the profitability. We are not so, let's say, concerned from the profitability perspective of those, of the reduction in the financing. Yeah, optically it doesn't look good. It's something that we work on. We worked hard on improving and making up for the loss on the government sector on other sectors.
We've seen growth in the private sector, which has been our predominant, let's say, strong play, both on corporate side and the retail side. We continue to work on those. On the, on the funding bit of it, the reduction in NRDs, I think it was not a pressure to reduce the NRDs. Yes, the sector NRDs were always high, but as QIB, we were far better placed, as we had been telling in the past as well, right? What we saw was the improved liquidity inside the Qatari domestic market helped us repay some expensive non-resident deposits, right? Non-resident deposits come along with the country risk that you would have to pay, which you avoid when you deal in the banking with the domestic sector.
That also has been another player in helping in maintaining the keeping control on the cost of funds and maintaining the NIMs. Yes, there are pressures, sometimes domestically between certain players. As we've been telling, we've always been one of the most liquid banks. Our... if you take our financing to deposit ratio stands at 95% compared to the domestic loan-to-deposit ratio in the sector is generally somewhere in 120 range. From that perspective, we always have a bit of, let's say, ability to not aggressively participate in certain domestic, competitive deposits because we are able to take care of our funding needs and as well as the regulatory requirements.
On the third and final question on the provision, as I said, it's if you look at it, majority of the allocation for the new ECL that we have created this year has been allocated to Stage 1 and partly to Stage 2. Stage 3, we've seen recoveries happening because of reduction in certain, especially in Q1, we were able to recover some of the Non-Performing Financings. In Q4 as well, we were able to achieve certain of those reductions through recoveries, and that's how it allowed us to keep to bring down the NPFs. Effectively, there was no major incremental NPF generation during the year while we saw some recoveries and that helped us bring down. Where we have created the provision, I think it's more about we have...
we've used the ECL modeling to allocate provisions in Stage 1 and Stage 2. Nothing specific in terms of any industrial or such. It's been widely distributed across all the sectors. I think we still have the, let's say, the uncertainty in terms of where do we eventually land especially if the interest rates move up, continue to move up sharply, and what does it impact the credit capacities of the various borrowers. As well as if there is a recession globally and whether it's going to be a mild recession or a very deep one, we'll have to go and see. As I said, we've always maintained our stand as a bank that if we are able to generate good operating performance, we will not shy away from creating new provisions.
We will continue to build because we believe building balance sheet strength through adequate provisioning is as critical as showing operating performances on year-over-year basis. Does that answer your question, Waleed?
Yes. Thank you much. Very clear, very comprehensive. Thank you.
Thank you.
Your next question comes from the line of Nikhil Potdar of QNB Financial Services. Your line is open.
Thanks for your presentation, better than expected results, sir. I've just got two questions. One again got to do with your deferred income. I just wanted to know what is the nature of your deferred income? I mean, are you able to execute the services for this? Second, it has got to do with again, with provisions, sir. Well, as compared to, you know, international banks, say Middle Eastern banks normally always maintain a high provision coverage ratio of say around 120%, sir, given the fact that it's a single rate source economies and, you know, the risk is high. In that concept, just wanted to check. I mean, do you think so in the event of delinquencies do take place, how will you be able to safeguard, I mean, your profit?
Another way of looking at it is your dividend payout, you know, which can also get reduced in a normal year in case suppose you maintain a buffer on your coverage, and also of course it'll help in your regulatory ratios. Yeah, these two points. Thank you.
On the first question on the deferred profit, I think it just the way an Islamic bank is required to account for. For any fixed rate financing and wherever we need to cross up the financing for the lifetime of the profit and put it as and reflect it as a deferred profit. It is the profit that we will recover over the life of the financing. As I was mentioning even earlier, these are netted off in a conventional bank because you don't recognize the future profits and gross it up. It's an accounting thing for an Islamic bank. If you want more details, please reach out, all I can tell you it is the way to look at the Islamic bank's financing as well as to say its exposure.
It should be done on a net basis to make it more comparable with a conventional bank. On the second question of NPF, well, I think we have a coverage ratio on the Stage 3 financing of 95%. I think it is one of the best in the market. I think we have only one of one peer in the market who is higher than us. If you look from that perspective, we've always been extremely conservative. In terms of our ability to absorb any potential future credit events happening in terms of a default, et cetera, what you need to look into it is in terms of the buffer that are there in the overall ECL.
If you are looking at the NPF and want to compare it with the overall ECL that we have on Stage 1, Stage 2, Stage 3, the coverage stands at almost 300% or north of 300%, I think. If I'm not mistaken, something like 310 or 313%. From that perspective, we are fairly well covered. On a Stage 3, on a like-to-like basis, it's a 95%, which is extremely healthy, and I think we have been as conservative as we can. You can't exceed beyond 100. What you said about 120, not possible under IFRS 9. You can only cover Stage 3 up to 100%. The balance, if you want to maintain buffers, you will need to maintain it in Stage 1 and Stage 2 portfolio, which we are doing.
If you want to look at the strength of our balance sheet, you would need to compare our ECL coverage on Stage 1 vis-à-vis the rest of the industry, where you will see there is a significant strength of our portfolio is reflected out there.
Okay. Thank you, sir. I mean, really appreciate, and I hope you continue with your trend on your provisions. Thank you. Thanks.
Thank you.
Your next question comes line of Vikram Viswanathan of Arqaam Capital. Your line is open.
Hi, everyone.
Vikram-
Can you hear me?
Yeah. We can hear you, Vikram.
Hello.
Go ahead. Yeah, go ahead, Vikram. Yeah.
Thank you. Thank you, Gaurang, for the presentation. Gaurang, I had a question about the asset quality review which is being conducted by the central bank. We heard from a few sources that this asset quality review is focused on Stage 2 loans, which for certain banks is a higher proportion of loans as compared with other regions. Would it be possible to take us through the asset quality review and can you tell us whether this is complete or this is an ongoing exercise which can, which can, which can spill into 2023 as well? That's my first question. The second question is, you...
There used to be a period where you used to have very low cost of risk, 50 basis points and lower. Are you in a position to go back to those cost of risk levels? Can you tell us, going forward, what is the sustainable cost of risk target for your bank? Thank you.
Thanks, Vikram. On the first question, I'm not aware of specific Stage 2 asset quality review because I would not be able to comment on that. As far as I can tell for of which could be happening for any other entity, I would not be able to comment on that. From our perspective, I can tell you is that every year in the last quarter, the auditors conduct a credit review on behalf of QCB based on the guidelines and the parameters defined by QCB, and the report is submitted to QCB based on which our year-end provision numbers are finalized.
The numbers that you see for us for Stage 2 as well as for Stage 3 are the ones that have been approved and endorsed by QCB, that they agree that we are adequately provided in terms of the and adequately categorize our credit portfolio. There's no specific Stage 2 asset quality review that is pending for QIB at this point of time. In terms of your second question on cost of risk levels, can I go back to 50 basis points, 60 basis points? I can go back to if required be because if you want to look at the true cost of risk, if you want to take the Stage 3 or if you want to take a part of Stage 2 as well, it would fall within those levels that you are talking about.
However, as we have said, it's not about can we or is it a question of will we. The will we would be determined by the same thing which we keep reiterating to say that if we have good operating performances, we will continue to build provisions. That's something that we are very clear. We are not focusing on a year-on-year results, but we are focusing on a strong medium-term trend on a sustained profitability management. Hope that answers your question, Vikram.
Thank you. Thank you, Gourang.
Your next question comes the line of Arun Kumar from SICO. Your line is open.
Hi. Hi. I have a couple of questions. Thank you for the opportunity. The first question is on the loan growth in 2022. In terms of sectors, the one of the major sectors contributing was real estate. I was wondering where, what kind of, you know, I mean, in terms of growth, which areas of real estate is like commercial real estate, or any other, you know, segment which was driving this? That was my... In terms of gross loans, I'm talking about. The second question is on the, your guidance on the loan growth of 5%-8%. will it come...
I mean, are you expecting kind of a broad-based growth, or do you expect this, government lending which, you know, took a step back in 2022 to come back in 2023? Thank you.
Answering to your first question, if you look at the loan growth that happened for us in 2022, the reduction predominantly came from government and government overdraft and other facilities and the growth came in from real estate, personal banking, services sector. It was a broad base. Real estate will always be there as a part of our portfolio because that's one of the core components of the Qatari economy, right?
If you want to take out the hydrocarbon out of the hydrocarbon-driven growth out of the equation, I think real estate will continue to be a core part of the opportunities, especially when, you know, in 2022, 2021, when there was a massive push going to, towards expansion to Lusail and other areas especially. Those will continue. If you look at it traditionally, Islamic banks as including QIB, real estate always has played a significant, let's say, a portion. We have worked a lot to bring its concentration down. If you still believe it's only 23% of the gross loans, so it's still not very significantly large, then this 23% would include personal residential mortgages, et cetera.
It's not something which is very, let's say, out of the normality. We will continue to look into good quality. Which sector? I think we have not been a big fan of the commercial real estate, especially the office spaces, et cetera. We believe that always there have been opportunities on the residential side, on the retail side, et cetera, revenue earning assets, and that's what we continue to focus on. On the second question, whether the 2023 guidance. I think the guidance predominantly comes from private sector point of view. On the public sector, we do not believe that government is again going to come and significantly increase the short-term borrowings that it used to have.
Given the fact that what we have heard as a part of the budgets for Qatar budget, et cetera, where they want to reduce the overall debt-to-GDP ratios, et cetera, we believe that we will continue to see, we'll not see much action on the pure government-related borrowings. What could happen would be we'll have to wait and watch how does the government-related entities come into the play, especially when the LNG expansion happens, and how they are going to approach the domestic banking sector for its credit needs, or are they going to work towards, more towards international funding of it. I think that's a bit of still we need to find out as we keep moving forward.
As of now, we are not projecting any major growth happening on the government side of it, most of the growth coming from the public sector side. private sector side, sorry.
Okay. Thank you, Gaurav. Just one follow-up question on the real estate exposure. You mentioned that like residential mortgages, like personal mortgages are also part of it. I mean, will you be able to quantify that? Secondly, in terms of going into now 2023, 2024, 2022 was a good year because of FIFA. There was a lot of, you know, demand for the real estate, especially for hospitality and all that. Are you in any ways worried that are there any worries that you have in the future of the, you know, real estate market?
Raj, I don't have the breakdown of the mortgages as of now. You can reach out to us. We'll be happy to provide to you on a one is to one. You have our contact details. We'll happy to provide you on that. On the second question, are we worried about the real estate? Apparently, no. I think we do keep looking out and as I said, we keep for tracking the various assets that we that are there in our portfolio or in the market for any new opportunities if they are coming to see if they are adequate, let's say, servicing capabilities on those assets, et cetera. As I said, it's a big change.
There was a lot of, lot of real estate, especially on the residential side, that the government has taken under its umbrella as a part of the 2022 campaign. Then we'll need to wait and watch what happens, or how are they going to release those inventories or how they're going to manage those inventories, et cetera. A lot of, lot of, let's say, questions that we will be looking forward to and monitoring it, but difficult for me to be able to give you a ready answer. Yeah, we continue to remain quite conservative, as I've been saying, right?
I'm sure you all know how to look into how we have been behaving as an organization in terms of our conservative provisioning approach. That would go in to show you that if there be a need or if there is a situation whereby we are obliged to recognize any Non-Performing Financings, which we are adequately, let's say, well-positioned to be able to absorb those. There's no reason for us not to recognize any non-performing assets if they were really there on the portfolio.
Got it. Thank you, Gourang. Thank you. Appreciate it. Thank you.
Your next question comes to line of Jaap Meijer of Arqaam Capital. Your line is open. Your next question comes to line of Nikhil Potdar of QNB Financial Services Your line is open.
Again, a follow-up question, sir. This is regarding, again, your loan composition that you have mentioned. You've mentioned about government, you know, wait and watch approach in terms of your inventories, which is going to be getting released. You also acknowledged that, you know, real estate, it has been developed quite high, and the real estate indicator, for example, Qatar has, you know, going down. Not much active to look from that point of view. You also mentioned about, you know, LNG expansion likely to come in the second half. My question is, you know, how you see in the coming two quarters in terms of your loan book growth? I mean, what is there any other drivers which you can look forward to? Commercial also you mentioned space you're not gonna be looking to that extent.
Just wanted to have an idea, sir. Thank you.
As I said, all I mentioned was that, the question which you answered on the real estate bit was to say on the asset quality bit of it. Will the opportunities not exist in real estate market? There would be always be an opportunities even in this market as well. There are a lot of projects that were in pipeline. Some of them were postponed given the fact that, they did not want to have a situation whereby they were partly completed, et cetera, et cetera. There will always be opportunities in the real estate. There'll always be, as I said, hydrocarbon would be there. In order to say where exactly it'll come for and from and which quarter, it's extremely difficult to give you on a timeline perspective which will follow what.
All we are saying is that Qatar being where it is at this point of time with the kind of revenue generation that is going to see from the hydrocarbon sector, not only based on the current oil prices but also from the fact that it is going to have an almost 60% increase in its LNG expansion and with a ready buyer in form of Europe already there. I think overall macroeconomic-wise, Qatar is very well-placed, and I think there would be adequate opportunities coming up within the domestic market. At the end of the day, the government will continue to pursue diversification of its revenues by investing outside. We believe that they're also committed to investing inside Qatar and developing it further. There will be opportunities coming up. I'm.
we are not worried in terms of the medium-term horizon. It's just that when you come out from a lull, like the way we had because of the World Cup, where the activities were focused on the sporting event rather than other activities, it always takes some time for the machinery to start rolling back in its original shape and form. That's what I was saying. All I was saying is that Q1 might still be slow, Q2 onwards, we should start seeing the normal business coming up all over again.
Okay. Thanks. Thanks for your detailed explanation, sir. Thank you.
There are no further questions at this time, so I'd like to hand the call back to Shahan.
Okay. Thank you, Gaurang, for the update, and I'd like to thank all the participants for joining in, and we'll pick this up again, in the first quarter of 2023. Thank you.
Thank you, everybody. Thank you very much.