Good afternoon, good morning, everyone. My name is Aybek Islamov. I'm an Emerging Markets, EMEA Financials Analyst at HSBC. I'm very glad to host you today at Qatar National Bank's Third Quarter Results Conference Call. With us on the call, we have Ramzi Mari, Group Chief Financial Officer, Noor Al-Naimi and Mark Abrahams of Treasury and Trading, as well as Durraiz Khan of Financial Planning and Strategy. With no further ado, I'd like to hand over the call to Mark Abrahams. Mark, please go ahead.
Thank you very much, Aybek, and to HSBC for hosting our Q3 2023 call. Before we begin, it is customary to remind you all that this earnings call is for investors and analysts only. Any media personnel should please disconnect now. I will begin by giving an overview on the macroeconomic environment. I will cover QNB's financial results for the nine months ended 30 September 2023. Finally, we'll open the floor to Q&A. The global environment continues to be affected by the negative consequences of excessive post-pandemic policy stimulus and geopolitical tensions. Despite the recent moderation of global inflation, price pressures are still high in most major economies, justifying higher policy rates for longer. It slows down global growth and increases the likelihood of financial instability.
Elevated oil and gas prices fuel robust fiscal and external revenues in the GCC, resulting in large surpluses and the execution of large investment projects. This adds to the momentum created by structural reforms. All in all, the GDP growth in the GCC is expected to remain favorable, mainly based on stronger hydrocarbon output. Also, for Qatar, the macroeconomic environment remains very positive. Qatar continues to lay the foundations for GDP growth over the medium and long term through investment, diversification, and stronger private sector engagement. On the non-hydrocarbon front, following the successful preparation and organization of the 2022 FIFA World Cup Qatar, 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.
On the hydrocarbon front, tailwinds from investments in increasing gas production will drive economic growth, with six 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. This investment is expected to increase Qatar's LNG production by 64% to 126 million tons per annum, contributing to almost a third of global LNG demand. The project will 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. The foundation stone for the project was formally laid just last week. We expect domestic activity to remain strong, with a GDP growth of 2.2% in 2023 and 2.5% in 2024, according to consensus estimates.
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 nine months ended 30 September 2023. Key financial results are as follows: Net profit was QAR 11.9 billion, or $3.26 billion, a healthy increase of 8% compared to last year. Robust revenue growth resulted in an increase in operating income to QAR 29 billion, or $8 billion, up 13%, demonstrating QNB Group's success in maintaining growth across the full range of revenue sources. QNB's cost-to-income ratio remained very strong at 20%, which is considered to be one of the best ratios among large financial institutions in the EMEA region.
Total assets are at QAR 1.186 trillion, or $325.8 billion, up by 4% from the same period last year. Loans and advances reached QAR 815 billion, or $224 billion, up by 7%. QNB Group remains successful in attracting deposits, which resulted in an increase in customer funding by 4% from September 2022 to reach QAR 822 billion, or $225.9 billion. The Group's loan-to-deposit ratio remains stable at 99.2%. QNB Group's ratio of non-performing loans to gross loans stood at 3%, reflecting the high quality of the Group's loan book and the effective management of credit risk. In addition, the coverage ratio on Stage 3 loans is at 100%.
Total equity increased to QAR 109 billion, up by 2% from September 2022. The bank's capital adequacy ratio, at 19%, is comfortably higher than both QCB and Basel III requirements. We will now turn to questions and answers. Thank you.
Thank you for your presentation, Mark. We'll now begin the Q&A session. There are three ways to ask questions. You can either type your question in the Q&A box, you can raise your hand and ask your questions live, and thirdly, you can also email your questions, and I'll read them out to the management. We have quite a number of participants on today's call. I would like to restrict the number of questions to three, please. We'll start with the live questions. Now I'd like to hand over the question line to Waleed Mohsin from Goldman Sachs. Waleed, please go ahead.
Thank you, Aybek. Thank you, Mark. Thank you, Ramzi. A couple of questions from my side. Number one, if you could talk a little bit about the underlying trends for net interest margin and how sustainable it is. It seems that a lot of the improvement is driven by Turkey. I wanted to understand if this is mostly because of CPI linkers and you've kind of readjusted your CPI assumption for the third quarter and also retroactively for the full year. If you could talk about that, like how much of this is sustainable, what's your kind of outlook on NIM? That will be very helpful. Secondly, on cost to risk, you were expecting some sort of an improvement. We saw that. How sustainable is it? How are you thinking about your guidance for the full year in terms of cost to risk, NIM, and profitability?
Okay. Let's start with the question by question. Net interest margin and how sustainable it is. We have seen good improvement in the third quarter, around 3 basis points to reach 257 basis points. I expect by year-end, we are going to be close to that ratio, between 255 and 257. I agree with you, CPI linkers were a good reason for the increase. But to say at same time, we saw a good increase in Egypt and in Qatar, mainly in Doha. Mostly because of the reflecting the three increases that took place in the Fed rate on the loans starting from July 1st. We have a good chunk of our assets are priced six months LIBOR, and many of these are priced January 1st and July 1st.
The three changes that took place or the three increases were reflected only in July 1st. The increase is not only want Turkey, but Turkey, Doha, and even Egypt. Cost of risk, as you mentioned, we said at the beginning of the year and in March and June that we expect cost of risk to drop. Now we are at 96 basis points. How sustainable it is? We think by year-end, we are going to be between 95 and 98 basis points, which mean a big drop from where were we last year because we were at 111. How we see this progressing in next year, I think we are going to be at the same level, even lower, marginally lower by five, but not more than 10 basis points.
In terms of guidelines, for the balance sheet, it will be lower than what we have originally gave. We expect at this stage balance sheet to grow between 2%-4%. P&L will continue to grow as we promised at the beginning of the year, between 7%-9%. Thank you.
Thank you, Ramzi. Just to follow up on this. You said that there's good improvement, obviously, in the NII, from your comments, it seems it's sustainable. I mean, if I look at the difference between second quarter and third quarter, it's almost a QAR 1 billion improvement in net interest income. I mean, is that kind of run rate sustainable, something close to QAR 8 billion per quarter? There's an offsetting adjustment in the hyperinflation line, right?
Fourth quarter outlook. It really depends on how many increases we are going to see during the remaining period. Everyone's talking about another one increase. Technically, in the fourth quarter, we are not going to benefit similar to the third quarter on the increases that took place from January to June. Even if there is an increase, that increase, we will see it in next January, not in the fourth quarter. The other important factor is the CPI linkers. It really depends what inflation rate is going to be in Turkey. From what we are seeing, it will continue to be high, and that's why we don't see drop in net interest income in Turkey. Based on our model, we believe the fourth quarter will be very close to the third quarter in terms of net interest income. What will happen next year?
There are 20 factors that will impact what will happen next year. Budget-wise, we're still projecting a growth in net interest income between 6% and 8%, which reflect good and healthy progress in net interest income.
Got it. Thank you very much, Ramzi.
Thank you. The next question comes from the line of Aaron Armstrong. Aaron, please go ahead.
Hi. Thanks for taking the question. It is Aaron from Ashmore here. Can you talk a little bit more about the net interest margin outlook, please? You mentioned the repricing on the loan side at six-month intervals. Can you talk a little bit more about that, please? Also on your cost of funding side, how you expect that to progress, and maybe if we think about one more hike or maybe a pause in the beginning of next year. In a stable interest rate environment, say, for a couple of quarters, what would you expect your net interest margin to do?
QNB is a corporate financial institution, and that why you see clusters in the repricing of loans. They are not the same month cfby month. A big chunk of our loans are priced six months LIBOR plus a margin. Many of these, the six months happen during January and during July. What happened in July is that they took advantage of the three increases that took place in the first six months of the year. Let's assume that an increase took place in April. These loans from us, we will not benefit from that increase in April, May, or June. Immediately in July, we will start to take advantage of that increase. That why you will see that in January and in July, a big shift in interest momentum based on the increases that took place in the prior six months period.
I hope this make it clearer.
That's great. Thank you. On the loan side. Perhaps on the funding side, could you talk a little bit about the repricing there, please?
The repricing in terms of cost of funding, it is close to that, the mixing is different. It's month by month, you are not going to see the big cluster that you have seen in loans.
Understood. Thank you.
You will see maturity. There is a lot of deposit, some of them are one month, three months, six months. If you look at the maturity month by month, you are not going to see major variances between each month and the others.
That's great. Thank you. On the deposit mix side, are you seeing deposits shift in favor of higher cost deposits or it's fairly stable?
I haven't seen major pickup in cost of funding in the last increase. In the last 25 basis point increase, we haven't seen major increase in cost of funding for QNB. Whether this will continue in the next one, we need to wait and see.
Okay. Why do you think that is?
The market is liquid. There is no fierce competition on Qatar riyal funding on system. At the same time, we are not seeing major pickup in loans. Banks are relaxed in terms of funding their Qatar riyal deposits.
That's great. Thank you. If you look at a stable, say, interest rate environment for a couple of quarters or maybe beginning of next year, does that imply a stable NIM for you? Or because your assets reprice in these kind of six-month intervals, there's a catch up and your NIM could increase, when interest rates stabilize?
If interest stabilizes in 2024, I don't expect major change on net interest margin. However, please note that I always said that having an interest margin close to 260 basis points for a bank at our size, close to QAR 330 billion, is not sustainable for the three to five years period, especially for a corporate financial institution like QNB. What I always said is that what is sustainable for an entity at the size of QNB is a margin between 240 and 245 basis points. QNB materially benefited from the increase in interest rate in the last two years. Hopefully, if the rates stay at this level, 2024 will continue to be solid in terms of interest income.
Beyond that, once interest start to come down, of course, margin need to go back to where it used to be three, four years ago, where value to close to 245 basis points. The quickness of the impact will materially drop in how we are going to manage our cost of funding and the repricing of our loans. This is what is sustainable. If you look at our profitability on a five-year timeline, this is where you need to assume that the normal margin or the sustainable margin for entity at our size.
That's very clear. Thanks very much for taking the questions.
Thank you, Aaron. Our next question comes from the line of Alay Patel. Barings Asset Management. Alay, please go ahead.
Thanks, Aybek. Hi, can you hear me, Ramzi?
Yes.
Yeah. Thanks for the call. Just a couple of questions. On NIMs, obviously, the NIM gets optically inflated with the CPI linkers in Turkey, et cetera. In your presentation, you generally put out a NIM excluding this for the group of somewhere between 2.5% and 2.6%. If we were to model going forward, for the group, the Turkish impact, or even for the entire group rather, 2.5% seems to be like a normalized margin, and then I don't need to worry about hyperinflationary losses because I want to check this is correct. In 2022, for example I think the hyperinflationary impact on net interest income was around QAR 2.4 billion, and you took a hyperinflationary loss of QAR 1.7 billion.
So rar, the nine months 2023, the hyperinflationary impact on net interest income seems to be about QAR 1.8 billion, and you've taken a loss of QAR 2.7 billion. It almost wipes it out a bit. Is it fair just to say, "All right, this bank is relatively immunized to interest rate movements, and 2.5% is a normalized NIM, and I don't need to worry about hyperinflationary loss?
I prefer that you assume 245- 250 basis points.
Okay, fine. Thank you. The next question is, if I look at the Turkish segment from the presentation, the contribution in net profit, U.S. dollars, was only $7 million, I think, for the third quarter. In Turkey, you grew loans in dollars by 11%, and you had improvement in NIM. I think the NIM was 7% in Turkey. Your net interest income growth is much higher than 11%. Yet the net profit is down by 85% to only $7 million. The cost of risk seems contained because it is only a 1.3% NPL in Turkey. Where is the losses coming from? Is it from mark to market on investment gains? I mean, a bit of it will be OpEx.
Very simple. The hyperinflation. The hyperinflation line, because materially it grew.
Oh, okay. You take the hyperinflationary loss impact, of course, in the segmental of Turkey. Yeah?
Of course.
Okay. Just my final question is just on cost of risk and asset quality. If we were to assume, at the moment you're at 3.1% NPLs, which is sort of a higher end to where you've been historically. If I was
We are not really . We are now, NPL 3.0%.
Yeah, 3% NPL. If I was to assume 70 to even 80 basis points cost of risk in my numbers on constant 3% NPL, I've got your coverage numbers ballooning out to like 250%. You're not going to do 250% coverage. Can you explain how you square this risk?
I think to end up with this number, you are taking Stage 1, Stage 2, and Stage 3. This can be misleading to the reader. What you need to take is only Stage 3. Some banks, when they issue their coverage ratio, they include Stage 1, Stage 2, Stage 3, ECL plus provision in the ratio.
This is misleading. You should only take Stage 3 against your NPL. This is exactly what we do. We have 100% coverage in Stage 3 provisioning for NPL, for Stage 3 loans. This is the way it should be presented.
Okay, that's very clear.
Even I, sometimes when I analyze numbers for banks, even in the region, I get misleading numbers because they include the three stages, and they tell me that their coverage ratio is 120%. When you take Stage 1 and Stage 2, you end up with not more than 45%-55%.
Okay. I should be just focusing on the QAR 25.3 billion in Stage 3.
Yes.
Using coverage based on that number. Okay. Cool.
Exactly.
That's it. Thanks a lot. Appreciate it.
Thank you, Alay. We are moving on to our next question from Chiro Ghosh, SICO Bahrain. Chiro, please go ahead.
Hi. This is Chiro Ghosh from SICO Bahrain. Just a couple of questions. First, the asset quality of both Turkey and Egypt has remained quite well, especially in the upward interest rate environment, high interest rate environment. How do you expect this to carry on over 2024 and onwards? If you can throw some light on that. The second question is on the government deposit side. I see that the government deposit in this quarter has come off a little bit. In a high oil environment, I can understand government loans coming off, but can you throw some light why the government deposits are coming down, in the current scenario? Just one more, just third one is, in the past you used to give some guidance on both your Egyptian operation and Turkey operation.
If you can throw some outlook on these two banks also.
Okay. I'll start with the guidelines. For QNB ALAHLI loans, 12%-15%, deposits, 23%-26%, profit and los s, between 42%-47%. In terms of Finansbank, loans, 45%-55%. I'm talking, of course, Turkish lira, 45%-55%. Deposit, same number, 45%-55%. P&L, we are going to be between breakeven to 5%. In terms of Turkey NPL . NPL ratio now is 1.3%. If we look at history, Turkish banks always had an NPL ratio between 3.5%-4.5%. We, in the longer term, need to go back to that ratio because this is a normal ratio for a market like Turkey. The 4%-4.5%.
That's why in the last two years, we have been taking a lot of provision in Turkey. To an extent, we reached 166% coverage ratio because we know that NPL will gradually start to pick up, and we wanted to be prepared. In terms of government deposits, I agree with you. There was a drop in government deposit in the last nine months. One of them was to reduce loans, the other one is to build more reserve in the central bank. Different factors, how they manage their own funding. At the same time, there is no major demand from banks to the government to increase the deposit. As we mentioned before, the market is liquid. Banks are not major pressure.
We don't see material growth in Qatar riyal loan. That's why the government is relaxed, and there is no push by banks to demand more share in their own funding. That's why we have seen the drop in government deposit.
Just a follow-up. Approximately the corporate deposits, the average corporate deposit versus government, is this a huge gap? If you can throw some light, I mean, how much the funding cost will go up because of this shift?
No, government deal with their deposit exactly like any other corporate.
Okay. That's all from my side. Very clear. Thank you.
Thank you, Chiro. Moving on to the next question from Olga Veselova, Bank of America Merrill Lynch. Olga, please go ahead.
Thank you. Thank you for this presentation and taking my questions. I have three, please. The first one is on capital. We're hearing that QCB is moving from Basel III to Basel III and a half. Can you please clarify for us the timing and which impact we may see from this change? This is my first question. The second question is on NPL, on asset quality. What was the source of NPL growth in the corporate segment year to date? If you can share this by regions and industries. The third question is actually a follow-up on net interest margin. Just to clarify, 2.57%, which you have in the presentation as a group margin, what was the margin excluding Turkey and Egypt in the third quarter, and what is your outlook on QNB ALAHLI margin for the next 12 months? Thank you.
Capital. I agree with you. We started testing the other four. In fact, we have stopped around six months ago. Impact that we have seen now is not material. Between 10- 25 basis points, not more than that. NPL by sector. There was a pickup in NPL, but it's not that big. I think in terms of sector concentration, I cannot pinpoint one sector that we have seen most of the increase from. I will point out, real estate sector was an important sector, which added. It's not the majority in terms of contribution. NIM, if you exclude Turkey and Egypt, I think you can assume it is between 220- 225 basis points.
That's great. What about outlook on margin for Egypt for the next year?
Egypt have seen good growth in margin during the year. We started the year at 540 basis point. We ended the year at 615 basis point. Is this sustainable? No. You cannot maintain a 615 basis point if you want to increase the book. What is sustainable? I think 550 basis point should be sustainable for Egypt, but this will be a long-term movement.
Yeah, that's great. Just to clarify on the first answer, you mentioned that for now the impact is small, 10, 25 basis points. Do you expect more impact to come? It's a process, it's not over? If yes, what's the timing?
No.
It's okay.
Not really. I said 10-25 basis points, I think today it is around 10 basis point, I'm capping at 25 basis point. I don't see more impact from what we have seen until today. Unless the QCB go to a more conservative approach, which we have are not seeing until today on this matter, it will be capped between the 10 and the 25 basis point.
Yeah. That's great. Thank you, Ramzi.
Okay.
Thank you, Olga. We're moving on to the next question from the line of Edmond Christou, Bloomberg Intelligence. Edmond, please go ahead.
Thank you for the call. Can you hear me?
Yes, loud and clear.
Excellent. The first question is broader question. Just looking at the private sector deposit in Qatar, if I look year- to- date, it's been falling. Is there a reason for the deposit for the private sector to not be growing? I'm just trying to reconcile this with the credit growth we have seen. We have seen almost 1% credit growth for the private sector this year, we'll expect deposit also to be growing. What is the rationale behind this? The second question is, the pickup in the private sector, probably you were expecting better private sector loan origination than what you have delivered. What's your expectation into next year, and how conservative we should be when we talk about next year asset growth for the bank or the banking sector in Qatar in general?
The last one is, maybe I'm wrong, it seems you have done some optimization for your cost of funding in Turkey. My understanding, your depository price quicker than loan, you should have a negative carry, you have a positive here. How should I think about the margin for Turkey going forward? The last one on margin is, if I may, let's assume the Fed starts next half of next year cutting interest rate gradually. Do you have a room to optimize your cost of funding in Qatar where, probably are able to enhance your asset yield? Is there an opportunity for margin to be stable?
I understand that you don't think margin are stable going forward, you will expect with cost of funding and some competition on the local liquidity from last year that there's opportunity for Qatari bank to optimize on their cost of funding and gain in a falling interest rate environment if the cut is gradual and not significant. Thank you.
Private sector deposit coming down. One reason, if you look at the system overall, we have seen a good drop in resident funding. This is a continuation from what happened in the prior year. Again, the increase in deposit, it really depends on the private sector. It really depends on the momentum in loans and the rates that banks are willing to pay. This mechanism impacts the overall growth in deposits. Loan next year, I'm budgeting 5%-7%. We have good signs that next year in terms of growth in private sector will be much better than this year. Of course, this year was also impacted by the repayment of loans by the state, which we assume this will continue next year if oil prices continue at current level.
In terms of growth in private sector loans, definitely we see a good momentum even in the last quarter that was signed in terms of new application for loans that things are moving better than what we have seen in the first nine months of the year. Margin for Turkey, this is probably the most difficult question that anyone can ask me in terms of how to predict how margin in Turkey will move. This can move every month different from the previous month depending on 10 factors, with the most important one, how the regulator going to move in terms of policy. No one can predict what is going to happen, and that's why it's very difficult for us to predict. Last year, we ended up close to 800 basis points. This year, for nine months, we dropped to 700 basis points.
For third quarter, we have seen major pickup in margin than the first six months. It will be extremely difficult for me to predict how. We manage this with our Turkish team quarter-on-quarter. We focus on short-term loans to short-term deposit to allow us to move very quickly and to absorb any sudden movements in terms of policy. If Fed drop rates in the next half of 2024, we always said that we benefit from an increase in interest on Fed rate. We always said that an increase of 100 basis points positively impact our total net interest income annually by between QAR 500 million and QAR 600 million.
Of course, that number can go down based on how we manage the cost of funding during the period, how much pressure we have in terms of deposits based on the growth in loans, and based on different factors we can control cost of funding. At the end, if interest start to come down, definitely interest margin on a monthly basis will come down, but that interest margin is not huge to an extent that it will impact the group. Net interest income for the group is now it's around QAR 30 billion annually. An annual increase of QAR 500 million, that is manageable. If reducing it, will reduce the impact. That's why when we talk about margin, I always say that we need to assume that sustainable margin for the group is not 257 basis point, but it is between 240 and 245 basis points.
Just to be in the conservative side.
Okay. Interesting. Yeah, I think this is very clear. In terms of the cost of funding optimization, I'm right that there has been some action taken in the quarter in Turkey to avoid a significant increase on repricing of deposit. I mean, you let some deposit go, right?
Please drop me-
Okay.
An email on this, I'll respond to you based on exactly what took place.
Okay. The last one on the fees. Is it sustainable? The fees have been very strong in Q3. I mean, is it sustainable for Q4?
Yes.
Okay. Perfect. Thank you.
From what I've seen, the momentum in the fourth quarter, yes.
Okay. Good luck. Thank you.
Thank you.
Thank you. We're now moving to the next question from the line of [Nikhil Kuttan], CBQ Asset Management. [Nikhil], please go ahead.
Hi, sir. Thanks for the wonderful set of results. I think a lot of questions have been answered, but just to understand a little bit more on the Turkey side, as you rightly mentioned, rising interest rate could help you enjoy better spreads. From that point of view and understanding that Enpara Digital Bank operations is now constituting more than two third of your overall profit as a finance b ank, do we see the similar trend to continue given the fact that we are seeing increasing loan, retail loan market share, and reducing cost to income ratio?
As I mentioned, to be able to predict how margin will move in Turkey, it's highly dependent on a lot of factors. The most important one of them is how the regulator will move the interest system more. This is very important and very difficult to predict. Even that one, when we built our budget for Turkey, we built it with three assumptions, using three different scenarios. Some of the scenarios said there will be an increase, there will not be an increase, or there will be a very fast increase. Each scenario end up with extremely different numbers. At the same time, then you end up with the impact of devaluation, how much pressure in cost of funding. Different factors. It is very difficult for me to give you a number on how we see margin in Turkey is going to move at this stage.
Because I can give you a number, but I can guarantee to you it will not be very accurate.
Coming back on the Turkey side, sir, your hyperinflation numbers actually have been seeing a sharp increase. I know, relative to your second quarter, for example, we have seen a quite sharp increase. I just wanted to understand the background behind this. For example, in the currency it got devalued from TRY 19 to dollar to TRY 26 during the second quarter, and the third quarter is quite flat. Are we missing something? How the hyperinflation is accounted, can you just throw some light on this so that we understand it better?
The hyperinflation number is not impacted by devaluation. The hyperinflation number is impacted by the inflation number that the state issue every month. We have seen an increase month-by-month of around 9%.
In July and August. There are the major pickup in inflation number that the state is issuing. This is the most important factor that impact inflation.
Okay.
Sorry, that impact hyperinflation line.
Okay. Do you foresee a similar trend going forward also in the fourth quarter?
If you can predict inflation in Turkey, I will be able to give you a number.
Yeah. Okay, sir. Thank you. Thank you, sir. One last question on Egypt operations, sir, if possible. Given the recent rating downgrade, which we saw from Moody's on the debt issues and record inflation and going forward, and S&P's also in October is coming up and all that, how do you foresee your Egyptian operations in terms of provisions and currency devaluation affecting QNB as a group? Overall, what do you see going forward in 2024, sir?
The downgrade should not impact the NPL because loans deposits in Egypt are Egyptian pound, the bulk. We carefully manage our NPL and our coverage ratio in Egypt. I don't see the downgrade of the state to impact the NPL ratio.
Okay. Okay, sir. Thank you. Thanks for your answers.
Thank you.
We now have a few questions which came through the Q&A box. I'll read them out for you. The first question is about the asset quality. Can you please share Qatar cost of risk on a standalone basis? Was there any write-backs or recoveries from Turkey this quarter?
QNB, excluding Turkey and Egypt, cost of risk are around 75 basis points. Was there any write-backs? You mean write-backs in Turkey?
Yes.
You mean during the quarter? Just immaterial. That will materially impact net profitability for the group.
All right. Thank you. Thank you, Ramzi. Next question, it's about, could you comment about the share of GRE deposits in your total deposits? What led to the decrease in assets and deposits compared to the previous quarter?
GRE deposit is 26.6% of the total. What is the next part of the question, please?
Yeah. What was the reason behind the decline in assets and deposits compared to the previous quarter?
Again, it is the appetite of the private sector for loan and deposit. Of course, please add to that the decline that took place in terms of devaluation. The devaluation also impact the overall consolidated number.
Sure. Thank you, Ramzi. Another question which is coming from the Q&A box. It's about M&A plans. What's the long-term strategy regarding the M&A, what regions is Qatar National Bank looking at?
Southeast Asia will continue to be the focus. We are going to continue to be opportunistic. If we find a good target at a good multiple with good potential for our growth, we will look at it. Today, as of today, we are not looking at anything specific. Again, things can move. If we find good target at a good multiple, we will look at it.
Thank you, Ramzi. Another question from the Q&A. It's regarding funding. We hear that the banks have been guided to lower their international deposits. Is there any guidance to lower your Eurobonds issuance as well?
No. It is not to reduce non-resident funding. It is more to focus on longer-term funding and to reduce short-term non-resident funding. This is where the QCB wants things to move forward. I don't see this impacting our Euro markets here, and if you, Mark, have any thoughts.
Sure. Exactly as Ramzi says, I mean, actually, we've been very quiet in the bond markets over the last couple of years, there's not been a material increase in our EMTN utilization over this period. Correctly, as Ramzi says, that the focus, if you like, is on extending tenor, and the EMTN issuance that we do is longer tenor funding anyway. There is no pressure or no guidance at all to reduce that number. If anything, that will go up slightly going forwards.
Sure. Thank you, Mark. Thank you, Ramzi. Another question, it's about your FX income that you earn in Egypt and Turkey, from your FX operations. Do you hold that income in respective countries, or are you able to repatriate it to Qatar?
No, this is part of the income of the individual countries.
Thank you. We have another question which came through the Q&A box. Let me read it out for you. Any update on the group guidance? That's the first question. There's a question about the cost of risk.
We-
Yeah.
We already answered this question. We said balance sheet, 2%-4%, P&L, 7%-9%.
Excellent. Thank you, Ramzi. We have one question which is coming in through the lifeline. It's coming from Deep Shah. Please go ahead.
Hello. Can you hear me well?
Yes, we can. Yeah.
Yes. Yes.
Yeah.
Go on.
Actually, I have a question related to deposits. Split of deposits, with government is 26.6%, and corporate is 56.6%. Just wanted to understand, in corporates, does government-owned entities are included, or it just includes corporates which are privately owned?
This will include all the private sector corporates.
Okay. Qatar Telecom, which is owned by government, will not be part of corporate, right?
Ooredoo? You mean Ooredoo?
In deposit splits, Qatar Telecom, which is owned-
Qatar Telecom, I think they changed their name 10 years ago.
Yeah.
Ooredoo-
Yeah.
is part of corporates.
It's part of corporate, even though it's government-owned.
It's a listed company.
Yeah.
It's a listed company. It's a private sector entity.
Okay.
You cannot see it as government.
Okay. Thank you. No further questions.
Thank you.
Right. Thank you, Ramzi. Well, we appear to have no further questions from the audience. Yeah, All right, we have-
We have one more.
from Alay Patel. Yeah. Alay, please go ahead.
Hi. Sorry. Just one follow-up, please, Ramzi. Just with the, I think, the Central Bank is implementing Basel IV from 1st of January 2024. Do you have any indication? Normally, I've been reading that this is actually better for your capital ratios. Would you consider, given your currently strong CAR, improving your payout ratio, especially in light of the fact that you don't have any M&A on the horizon?
Basel IV will not have positive impact on our capital ratio. I think we already answered another participant, that the impact will be negatively between 10- 25 basis points.
Okay.
The way it calculates risk weighting to punish some financial institution, it will not benefit financial institution.
Okay. you're still-
To be honest, nothing coming today that benefit government, that benefit FIs. Everything that come, it usually put more limits to financial institutions around the world, not only in QNB.
Okay. I guess, if it penalizes you 15- 25 basis points, you're still at close to 20% Tier 1. On the dividends, is it just the policy to-
Are we going to reduce capital, you mean?
No, I was just asking if you would improve the dividend payout ratio.
No, I think payout ratio, it's now around the 40%. I think this is where we are going to see it, between the 40% and 45%.
Okay. Cool. Thanks a lot for your time.
Thank you.
Thank you, Alay. At this point of time, we don't have any further questions. Ramzi, would you like to make any closing comments for the call?
I just want to thank everyone on participating. Signs for the fourth quarter continue to be very solid and very positive. We still believe that operating profitability for the group will be around 11%, which is very healthy and very strong, which will allow us to continue to have a very strong number, at the same time, conservative number. Thank you all for participating, and hopefully to see you again in January.
Thank you, Ramzi. Thank you everyone for joining this call.
Have a good day. Bye.