I welcome you all to Qatar National Bank's second quarter 2025, first half 2025 earnings call. This is Rahul Bajaj from the Citi Research Team in Dubai. Representing QNB's management team today, we have Group Chief Financial Officer Mr. Ramzi Mari. We also have Noor Mohammad Al-Naimi, SEVP Group Treasury and Financial Institutions, and Mark Abrahams, EVP Group Treasury Trading. Without further delay, maybe I'll pass on the call to Mark for the opening remarks. Over to you, Mark.
Thank you very much, Rahul and Citi, for hosting our call today. Before we begin the call, it is customary to remind everybody that this call is for investors and analysts only, and the media should please disconnect now. We will begin by giving a brief overview of the global and regional macroeconomic backdrop. We will then present briefly the quarterly financial results of the bank, and finally, we will open the floor to questions and answers. The global economy is set to expand by 2.8% in 2025, moderately lower from last year and a touch below its long-term trend of around 3%. The macroeconomic environment is volatile on the back of U.S. policy uncertainties and a fluid geopolitical landscape. Central banks in advanced economies have frontloaded a significant process of monetary easing.
More is expected as policy rates are taken from restrictive territory towards neutral or accommodative levels over the second half of this year and throughout 2026. In the Middle East, geopolitical tensions have eased significantly on the back of an Iran-Israel ceasefire. Moderate oil and gas prices continue to support significant fiscal and external revenues in the GCC, resulting in either twin surpluses or the execution of large investment projects. This adds to the momentum created by structural reforms and the continued expansion of international tourism. Normal GDP growth in the GCC remains favorable, mainly based on population growth, a large pipeline of CapEx projects, energy infrastructure expansion, and robust FDI inflows. Also, for Qatar, the macroeconomic environment remains positive.
With total exports of $123.2 billion and central government revenues of $57.5 billion over the last four quarters, Qatar benefits from a robust fiscal and current account position. Domestic activity has also been strong and gained further momentum, with an expansion of 2.4% of GDP and 3.4% of non-hydrocarbon GDP in 2024. This was driven by dynamic sectors such as wholesale and retail trade, accommodation and food services, and financial services. Preliminary data on Qatar GDP figures for Q1 2025. Composite Purchasing Managers Index survey data suggest continued strength this year, with non-hydrocarbon GDP expanding by 5.3% year on year and PMIs in expansion territory for five months. Importantly, Qatar continues to lay the foundations for GDP growth over the medium and long term through new projects.
On the hydrocarbon front, tailwinds from investments in increasing gas production will drive economic growth, with eight new LNG trains planned under the flagship North Field expansion project, one of the largest capital expenditure projects in the region and industrial engineering projects in the world. These investments, to be executed in three phases, are expected to increase Qatar's LNG production by 85% to 142 million tons per annum by 2030. Qatar is also ramping up efforts to diversify its economy and increase private sector engagement. On the non-hydrocarbon front, the country further consolidated its position as a regional and international hub for business, investments, commerce, tourism, and culture. This accelerated the execution of Qatar National Vision 2030 and assisted in the ongoing transition towards a knowledge-based economy. The North Field expansion project will also include an equivalent expansion of Qatar's refining, downstream, and petrochemical capacity.
Positive spillovers from these projects will combine with diversification efforts and structural reforms to boost economic activity and spending in the broader manufacturing and services sectors. GDP growth is expected to remain strong and then accelerate in the coming years. 4% in 2025, 5.2% in 2026, and 7.9% in 2027. As a result, the economic expansion continues in Qatar, while the banking sector is resilient and healthy, presenting significant growth, ample liquidity, adequate levels of capitalization, high asset quality, and robust profitability. I will now move on to QNB's financial results for the six months end.
One minute. Hi. Can everyone hear us properly? Rahul.
I can hear you fine. Ramya, Greta, can you please check the audio is fine?
Audio is coming out loud and clear as well. Thank you.
Okay, because Noor is saying that she can't hear us properly, so we're just checking.
If it's fine, then we can.
Closer to the mic. That would help.
Okay. Ramya, if you can just confirm, then we will continue.
Please go ahead, sir. The audio is coming out loud and clear.
Okay, we'll continue.
Okay. Based on that, let me continue. Apologies for the delay. I will now move on to QNB's financial results for the six months ended 30th of June 2025. Key financial results are as follows. Net profit was QAR 8.4 billion, or $2.3 billion, growth of 3% compared to last year. The growth in net profit was partially impacted due to global minimum taxes effective in 2025. Excluding the impact of these taxes on a like-for-like basis, net profit is up 11%. Robust revenue growth resulted in an increase in operating income to QAR 21.8 billion, or $6 billion, up 8%. Demonstrating QNB Group's success in maintaining growth across the full range of revenue sources. QNB's cost-to-income ratio remained strong at 23%, which is one of the best ratios among large financial institutions in the Middle East and Africa region.
Total assets are at QAR 1.354 trillion, or $372 billion, up by 7% from the same period last year. Loans and advances reach QAR 962 billion, or $264 billion, up by 9%. QNB Group remained successful in attracting deposits, which resulted in an increase in customer funding by 5% from June 2024 to reach QAR 935 billion, or $257 billion. The group's regulatory loan-to-deposit ratio remained stable at 96.6%. QNB Group's ratio of non-performing loans to gross loans remained stable at 2.9%, reflecting the high quality of the group's loan book and the effective management of credit risk. Additionally, the coverage ratio on stage three loans remains at 100%. Total equity increased to QAR 119 billion, up by 8% from June 2024.
The bank's capital adequacy ratio at 19.2% is comfortably higher than both QCB and the latest R3 reform requirements. In relation to the QNB buyback program, QNB has completed buyback of approximately 116.1 million shares at a cost of QAR 1.96 billion up to June 30th, 2025. Buyback execution remains in progress. The board of directors of QNB have approved an interim cash dividend in respect to the six-month period ended 30th of June 2025 of QAR 0.35 per share. This is subject to approval of the Qatar Central Bank. We will now turn to Q&A. Thank you very much.
We will now move into our Q&A session. For those of you who are joining via Zoom, if you would like to ask a question at this time, please raise your hand by clicking the raised hand at the bottom of your Zoom window under the reactions button. Once called upon, please unmute your audio to ask a question. If you have joined via line, please press star nine to raise your hand. Thank you. Our first question will come from Salome Scherkadze. You may now unmute and ask your question. Hi, Salome. We can see you are unmuted, but we are not hearing you. If you could check your microphone settings, we'll go to the next question and return. Our next question comes from Chiro Ghosh. If you could unmute and ask your question.
Hi, this is Chiro Ghosh from SICO Bahrain. A couple of questions from my side. First is from the asset quality perspective. We see that the Turkey division, there has been some asset quality deterioration. On the other hand, Egypt has done well. If you can shed some light on the asset quality development in these two geographies, that's my first question. Second is we are seeing a continued, the share of deposit from the non-Qatari geographies, the share of deposit has actually continued to rise. If you can throw some light on what is the outlook and what would be the strategy going forward. Third is if you can shed some light on the hyperinflation loss, how should we model it from here on. Yeah, these are my three questions.
Thank you, Chiro. This is Durraiz Khan. In terms of your first question, in terms of asset quality in both Turkey and Egypt, yes, you have rightly pointed out that asset quality indicators in Turkey have deteriorated. The reason is obvious. The benchmark rates are all-time high and have been for quite some time. The NPLs have gone in Turkey in December from 2.5% to 2.9% in March and 3.2% in June. We expect that the interest rate outlook is expected to be more accommodative in the second half of the year as inflation is under control. We expect that NPLs would peak around 3.5% level at this time for the full year. In terms of Egypt, in Egypt, the NPLs have continued to improve. From December, they have gone from 5.3% to now 5.1%.
We expect inflation is at its peak in Egypt and may improve as interest rate becomes more accommodative in Egypt as well. From an asset quality perspective, we expect Turkey to be near peak and Egypt to be at peak. Having said that, our cost of risk guidance remains the same because in both of these geographies, we have a lot of provisions built in in stage two and stage one for NPLs. In terms of share of deposits for non-Qatari depositors, it is simply a function of liquidity, cost, and pricing. As long as we have the balance between the right duration at the right cost, we will basically prefer a particular set of deposits over the other. Having said that, whenever we are going for non-resident deposits, we always try to ensure that the duration of deposits is longer.
In nature, at least over one year and preferably over two years. In terms of hyperinflation, the way you model it, it's fairly simple. Net equity and the enterprise multiplied by the average inflation rate for the year. As inflation rates will come down, the hyperinflation charge will come down as it has been coming down in the recent quarters.
Perfect. Thank you very much. That's all from my side.
The next question comes from Salome Scherkadze. You could unmute your line and ask your question.
Hello. Can you hear me now? Hello?
You're coming through loud and clear.
Yes, we can hear you.
Okay, great. Thank you for the presentation. I have two questions. On the loan growth side, I see quite significant growth coming from the international markets. Turkey, Egypt clear, but there is some contribution from other regions. If you could please break down the growth sources and highlight what part comes from the Saudi Arabia market. The second one on the funding side, the growth was basically funded from the interbank and borrowings, while domestic deposit growth was quite muted. If you could give us your guidance on the funding structure going forward and whether we should anticipate higher share from these two sources going forward. Thanks.
Thank you, Salome. For the loan growth, yes, we have had quite strong growth. In both Q1 and Q2, and we would like to just reiterate that we are actually upgrading the guidance for the loan growth for the group. Previously, we were talking about 5%-7% loan growth. Now we are talking about 7%-9% loan growth for the group. For deposit, we had previously 5%-7%. We are upgrading it to 6%-8%. And for asset growth, we were talking about 5%-7%. We are now upgrading it to 6%-8% for full year. Coming back to your question, loan growth has been particularly strong in the second quarter sequentially. Almost half of the loan growth has come from Turkey, followed by all other divisions, particularly contribution of Saudi Arabia. Yes, there is growth, but in terms of.
Large numbers, it would not be there. In terms of overall funding mix, no, it's simply a matter of timing, seasonality that probably interbank or other borrowings and debt securities are slightly higher. All of these are longer duration other borrowings or debt securities that we have taken in Q2. It's simply on a larger scheme of things, on an overall basis, we don't expect any significant change in our funding profile.
Thank you.
Our next question comes from John Peace. If you could unmute your microphone and ask your question.
Oh, yeah. Hi, thank you. The first question, please, is on the net interest margin. I think for the second quarter, it's probably at the lower end of your annual guidance of 260-265. I just wanted to check that you were still happy with that guidance and what actions you might take in the second half of the year to offset any further rate reductions. The second question, please, is on the share buyback. Do you think you'll complete it in the third quarter, or is it more likely to be spread across the third and the fourth quarters? Any thoughts as to whether you might repeat that going forward? Thank you.
In terms of the net interest margin in Q2 versus Q1, the primary reason for the decline was coming in from Turkey as they had the late Q1 rate hike, which impacted net interest margin. As Turkey rates become more accommodative and rate cuts are expected as the rest of the year, we would expect that net interest margin, particularly in Turkey, would recover. Other franchises, net interest margin has been stable or has been increasing. We stick to the guidance of 260-265 basis points. In terms of your second question on share buyback, it is simply a matter of timing. Usually, second half of the year, the volumes are lower. We may finish Q3, we may finish Q4. It depends on what are the volumes in the market.
As we inch closer to the program, we will then go back to the board, giving the feedback on the existing programs and then seek their guidance on how to continue.
Thank you.
Our next question comes from Rahul Rajan. If you could unmute your line and ask your question.
Hi, good day. Thank you for taking my questions. A couple of questions from my end. First up is on the guidance part you mentioned on the revised guidance on the balance sheet aspects. Do you have any revised guidance from a P&L perspective from the bottom line and the asset or cost of risk front? That's number one. Number two is on the effective tax rate. I think this quarter has come in at around 17.9%, 18%. The first quarter was around 18%, 19%. Do you think that this is sort of the stable growth, effective tax rates that we can assume going forward for the rest of the year and the subsequent years? Sorry, my last question is on the LDR. Could you please help us understand about the regulatory LDR versus the LDR? How is it different in terms of computation?
Is it that longer dated deposits have a higher weight or some nuances on that front, please? Thank you so much.
Yes. In terms of your first question, any change in the guidance for cost of risk or profit and loss? No. Profit and loss, we actually upgraded the guidance in the last first quarter of the year. We are sticking to the same guidance. Profit before the impact of Pillar Two Taxes, 10%-12%. Profit after impact of Pillar Two Taxes, 1%-3%. Again, similar cost of risk guidance remains the same, 80-85 basis points. No change in that guidance. Effective tax rate, yes, as we have said, effective tax rate that was in Q1 is very similar to that in Q2, and it is expected to be similar. As inflation probably comes down, there might be some delta because of hyperinflation charge because that is not tax deductible. On an overall basis, we do not expect any major changes in the effective tax rate.
In terms of LDR calculation versus regulatory versus what is reported on the balance sheet, principally, the regulatory ratio also includes longer dated debt securities and other borrowings, whereas on the balance sheet, they come in a different line. That is the primary change. There are other changes slightly in the deposit number itself. Why LDR from a regulatory perspective is slightly lower is because the denominator of deposits also includes debt securities and other borrowings, which are above, I think, more than two years.
Thank you. If I could, sorry, please ask a follow-up on the earlier question on the buyback as well. You mentioned that you expect the buyback to happen in the next two quarters. Any update on what happens to the bought back shares in terms of cancellation, or do you go and sell that back to the market? Any update on that, please? Thank you.
We have stated this previously as well, that at this time, we do not have any plans to sell the shares back. We do not need to. From a capital adequacy perspective, we are above. In terms of cancellation, as we have stated, the current rules are quite restrictive in terms of allowing the cancellation. We would, given the parameters under which we are operating at this time, we would keep the shares.
Thank you so much.
Our next question comes from Kumaraj. Kumaraj, if you could unmute your microphone and ask your question. Hi, Kumaraj. We are seeing your microphone is unmuted, but we are not hearing you. If you could just check your microphone settings, and we'll come back. Our next question is from Ibek Islamov. If you could unmute your microphone and ask your question.
Yes, good afternoon, everyone. Thank you for the presentation. A couple of questions from me, please. The first one is regarding the tax rate, right? Should we expect to see any offset from the operating costs? I recall you mentioned that there are certain social contributions and so on and so forth that QNB does. Should we expect to see some improvement on the operating cost side, which will offset the increase in the effective tax rate? Yeah. And how soon should we see that improvement? Is it second half 2025 or later? That's my first question. Secondly, with regards to earnings diversification, I remember that back in the days, QNB used to mention this target of 50/50 split between international and domestic earnings. I believe you are below that kind of 50/50 split today. What are your thoughts about this diversification targets that you mentioned in the past?
Any comments? Thank you.
Yes, I'm back. Thank you for the questions. In terms of tax rate, the way social contributions are accounted for already is built in the current tax rate. As we have said, the effective tax rate is not going to change because the way we are treating it in Q1 and Q2 is expected to continue in future as well. We pay social contributions directly, and it is disclosed separately in a statement of change in equity, which is taken as a covered tax. When we are computing the taxes, we are assuming that the similar treatment, those will be allowed as covered taxes in future as well. In terms of earnings diversification, of course, we are lower than what we want to be. It is big.
At the same time, we have ensured that from an overall basis, our profitability has continued to grow consistently year on year, despite challenges that we have obtained. We would like to improve this diversification, but at a measured pace and through sustainable investment in our current operations in international markets. That is the right way to improve it, and that will take us time to reach where we want to be.
Thank you.
Our next question comes from Kumaraj. If you could unmute your microphone and ask your question. Hi, Kumaraj. If you could unmute your microphone and ask your question.
Hello. Am I audible now?
You're coming through loud.
Yes. Yeah. Thank you very much. I have a couple of questions. The first one is related to the contingent liabilities. These, I presume, are like off-balance sheet items such as LCs and stuff like that. Year to date, this has increased by about 9%, which is higher than the loan growth. I just want to understand where this is coming from. Are these related to any particular large projects which are happening in Qatar? Plus, going forward, what is your expectation regarding this? Some of these kind of facilities generate kind of fee income. Secondly, on the fee income side itself, this first half, also, there is a very strong growth in fee income, about 10% compared to last year.
I want to understand, I mean, I want to know whether you expect a similar trend going forward in terms of year-end commission income. Thank you.
In terms of the contingent liabilities, the growth that we have, you're saying it's slightly higher than loans, but our loans have also grown very strongly if you compare it. Versus December and versus last year. Both contingent liabilities as well as loans have been growing very strongly. The growth is quite balanced. It's coming principally from our Qatar operations and coming in from our Turkish operations as well. Of course, growth in fee and contingent liabilities carries fees, which is reflected in our fee and commission line, which is also growing very strongly. In terms of shall we expect the fee and commission to continue to grow at the same rate? We don't have a specific guidance for each line. We stick to the profitability guidance that we have given. That post-impact of taxes, we expect the profitability would be around 1%-3%.
Obviously, volume-driven increases will be there in different lines. That will be reflected in profitability as we go along the year.
Okay. Thank you. If I may ask one more question, what kind of expectation do you have in terms of the OpEx? Because OpEx, I think, I guess it's primarily driven by non-Qatari operations like Turkey because inflation has been driving. Going forward, what is your expectation on the non-domestic operations, the cost increase?
In terms of Qatar operations, the main OpEx lines, the maximum increase that we give is between 5%-6%. That's the maximum. Most lines are actually below that 5%-6%. However, as you're aware, both Turkey and Egypt have inflation rates which are extremely high. That is the place where most of the OpEx growth actually comes from. What we see in both of these markets, inflation is moderating. What we see for the rest of the year is what the Q1 and Q2 numbers are expected to continue in both of these markets, assuming the inflation continues on the same pace.
Okay. So you're saying that the. I mean, we can expect 5%-6% kind of a growth at the group level?
No, it will be higher because in both of these franchises, the growth is at high single-digit rates. I'm talking about Qatar. In Qatar, the growth is low single digits, whereas in these franchises, it's higher. Resultantly, the group number will be higher.
Yes. Okay. Right. Thank you.
Our next question comes from Omolola Mokhtari. If you could unmute your microphone and ask your question.
Hi. I just wanted to ask, could you please provide an update on earnings guidance for Egypt if there's any? It would also be helpful to understand how you view the current 15% guidance in the context of the ongoing inflation, which is running at a similar rate. Thank you.
Could you please repeat the first part of your question?
Could you please provide an update on earnings guidance for Egypt, if there's any?
For Egypt. We have the earning guidance. Is actually. Upgraded in local currency. In Q1, we talked about. 1%-2% growth, whereas we are now talking about 4%-7% growth for Egypt in local currency. We have upgraded because we have had strong top-line performance in Egypt for this year.
Okay. Thank you.
Our next question comes from Andy Brudenell. If you could unmute your line and ask your question.
Hi there. Yeah. Can you hear me okay?
You're coming through loud and clear.
Yes. Okay. Thanks. No, thank you very much, guys, for this. So yeah, lots of interesting information, particularly on the international side. I guess as asset growth. As you said, you've upped the guidance for that across the balance sheet, which is great to see, mostly driven by international. But then earnings growth is not expected to sort of see that commensurate. I know you upgraded it in the first quarter, but I would assume that the stronger second quarter in international will give us a sense there might be some more earnings coming through. Is that not happening because, as you say, it's related to the sort of commensurate OpEx growth due to inflation? Or is it a little bit more related to NIM? Could you just talk a little bit about kind of the NIM dynamics? What's happening in Qatar?
Just remind us how you expect that to pan out. I would have thought, as Turkey's growing faster and you ought to see some better NIM there, that that actually would help earnings growth towards the bottom line. Can you just sort of square that circle for me, please? Thank you.
If we go back to Q1, we were at very strong balance sheet growth in Q1 as well. The question came up as to why are we not updating the guidance, because we had almost done at that time almost half of what we had given for the full year. Our view was that though we updated the earnings guidance, we said that we would like to see how the balance sheet is performing in Q2. Simply, it is a continuation of what happened in Q1. Now that we have seen that the balance sheet has what was expected in Q2 has become more clear, we have updated the guidance for the balance sheet. How we expect the second half to perform, as we have said, we expect Turkey actually to improve the NIMs.
The drag on the NIMs, which has happened in Q2 because of Turkey, that would recover. In terms of other, why there is no stronger see, if you actually compare on a like-for-like basis, we have taken a significant hit in terms of taxes this year. Despite that, we are basically, our Qatar earnings, which were never taxed, are now being taxed at an effective rate of 15% almost. We have taken this hit, which shows the very strong growth that is coming in from all parts of the franchise. That is the primary reason why we are more stronger, we are more comfortable at this time in terms of balance sheet growth. In terms of profitability, we had already updated the guidance. It is simply a continuation of both of the things. It is simply we have confirmed it now.
We knew about it, and we said, "Let's wait for one more quarter before we get confirmed.
Yeah. Okay. Okay. Any more you can give on kind of where NIMs can go, breaking down sort of international versus domestic, please? And kind of what you're expecting rates-wise.
See, if in second half, if the rate cuts happen by Fed and followed by QCB, we would expect the impact of that to come in primarily in 2026 or probably very late 2025. From that perspective, it would not be this year's story. As we've talked, we would expect Turkish NIMs to recover. As part of other parts of the operations, the NIMs would be broadly similar as we have seen in the first half of the year.
Okay. Thanks. Sorry. Maybe just one more, just on going to the domestic business. Though international has taken most of the headlines this quarter, I mean, the Qatar loan growth is still pretty decent, particularly versus the peers that we've seen so far. Could you maybe give us a little detail around that? Were there any repayments suggesting that the growth, actually the gross growth, was even higher? You touched on some trickle-down impact in credit demand, which most of the other banks, most of your other peers are not seeing. Could you give us an update on that, please? Anything else you're seeing in the real estate tourism space, which are obviously the areas that people are hoping can really turn around to help the domestic economy? Thank you.
In terms of domestic loan growth, I mean, it's not really appreciated enough, but it is something that continues to deliver for us year in, year out, despite whatever challenges that happen. This is quite balanced year in, year out, coming in both from the public sector as well as the private sector. Certain quarters, its public sector is higher. Certain quarter, private sector is higher. In terms of repayments, yes, there have been certain repayments. Excluding that repayments, the loan growth was even higher. We do not have any major exposure to the hospitality and hotels, so really not much to talk about over there. On an overall basis, the domestic loan growth has continued to perform as expected year in, year out, and will continue to be the very strong growth engine for QNB going forward.
Okay. Sorry, maybe I wasn't clear. The North Field expansion spending by the government, the trickle-down from that, sorry. Is that happening, or is that a 2026 event, to your minds?
Some of it is appearing in the contingent liabilities and indirectly also on the balance sheet lines. That will continue to be the growth driver for future.
Okay. Thanks.
As a reminder, if you would like to ask a question, please use the raise hand function at the bottom of your screen or press star nine if you are dialed in by phone. Our next question comes from Rahul Rajan. If you could unmute your mic and ask your question.
Thank you so much for taking up a question once again. Very quick question. On the P&L line, I see a line item called other operating income, which was substantially higher this quarter at around QAR 147 million versus historical averages. Is there any one-offs in this line item that we see, or if you can just help us understand. What's driving this growth? Thank you.
There were one-offs, but coming in from Turkey in this line.
Could you help us quantify the one-offs, please? Or do you—so that will help us better model numbers?
Most of the change quarter-to-quarter is actually one-off coming in from Turkey.
Got it. Thank you.
There are no further questions at this time. I will now hand back to presenters for closing remarks.
Thanks for taking the time to attend the call. If there are no further questions, maybe we can close the call now. Thank you.