Qatar National Bank (Q.P.S.C.) (QNBK) Earnings Call Transcript

Hello. Good morning, good afternoon to everyone. I was joined this call today. This is Rahul Bajaj here from the Citi Financial Research team here out of Dubai. We are very delighted to host Qatar National Bank's Third Quarter '26 earnings call today. Joining us from QNB. Today, we have RamziMari, Group Chief Financial Officer. No Mohali, SEVP, Group Treasury and FIs and Marcarahams, EVP, Group Treasury trading. Without further delay, I'll pass on the call to Mark to start his opening remarks. .

Thank you very much, Rahul, and Sidio hosting our call today. Before we begin, it is customary to remind everyone that this call is for investors and analysts only. And any media, please disconnect now. I will begin today by providing a brief overview of the economic backdrop in the region and Kate. We will then proceed to give a summary of our 9-month financial performance and then open the floor to questions and answers. The beginning of 2026 was characterized by a resilient global economic backdrop driven by artificial intelligence and technology-driven investments and private sector demand. Momentum has weakened since the beginning of March 2026 due to the geopolitical events in the Middle East. This resulted in disruption of commodity and energy markets and, of course, heightened volatility. In its July 2026 World Economic Outlook update, the IMF nevertheless noted that the global economy has remained resilient and projected growth of 3% in 2026. And 3.4% in 2027. As technology-led momentum partly offsets the impact of the conflict, while risks remain tilted to the downside. These events affected by the -- sorry, these effects events affected the overall outlook, the macroeconomic landscape for GCC countries, primarily due to the suspension of trade by the Stratiform and the impact on the region's energy, transport and other industrial infrastructure. Beyond the hydrocarbon sector, the local economy has proven resilient and has returned to normal operation. The latest data also confirms that the underlying non-hydrocarbon economy remained in expansion mode despite regional disruptions. Tata's nonmining and quarrying economy, which represents 75% of the GDP expanded by 2.6% year-on-year in the second quarter of 2026, with first half growth coming in at 3.1%. Growth was broad-based across all key sectors, including real estate, financial and insurance wholesale and retail trade and construction up mid- to high single digits. This expansion partly balanced the hydrocarbon output reduction, which resulted in an 11.4% contraction in overall real GDP for the first 6 months. As conditions normalize, the resumption of hydrocarbon production and exports alongside continued growth in trade and services, is expected to support a broad-based strengthening of economic activity. Higher energy prices are expected to provide support to external and fiscal balances. Furthermore, Qatar Energy revenues and in turn, Qatar government income will also be helped by the ramp-up of operations at the Golden Pass terminal in Texas, the United States. Against this backdrop, Qatar's medium-term economic outlook remains constructive. The country's strong sovereign balance sheet, prudent macroeconomic policies, and continued investment program provide a very solid foundation for recovering. We continue to expect recovery in hydrocarbon activity, expansion of LNG production capacity and new export infrastructure to support economic growth over the medium term. The hydrocarbon expansion will be further supplemented by a broader investment pipeline of more than USD 60 billion including non-hydrocarbon infrastructure projects through public private partnerships and other real estate and hospitality projects in the next 5 years. To manage this economic expansion, though our investment, a dedicated platform has been established to oversee the Cape Investment Authority's domestic portfolio. This entity aims to expand the private sector's role in driving economic growth deepening local capital markets and ensuring local businesses remain globally competitive. The Qatar banking system remains robust and resilient following its review of recent geopolitical developments, the QCB has reiterated that the financial system is operating from a position and strength, highlighting strong liquidity and capital levels significantly above regulatory requirements and strong provisioning coverage against credit risk. This was reinforced by September rating actions with Fitch and S&P maintaining their ratings. In summary, Qatar has demonstrated remarkable institutional, operational and financial resilience. This also supported the strength of the banking system, which continues to operate from a position of stability. I will now move on to QNB's financial results for the 9 months ended 30th September 2026. Key financial results were as follows: Net profit was BRL 13.3 billion or USD 3.7 billion, growth of 4% compared to last year. Robust revenue growth resulted in an increase in operating income to BRL 36 billion or USD 9.9 billion, up 8%, demonstrating QNB Group's success in maintaining growth across the range of revenue sources. QNB's cost-to-income ratio remained strong at 24.3%, which is 1 of the best ratios among large financial institutions in the Middle East and Africa region. Total assets were at MYR 1.46 trillion or USD 402 billion, up by 5% from the same period last year. Loans and advances reached BRL 1.06 trillion or USD 291 billion, up by 6%. And QNB continued to attract deposits, which increased by 2% from September 25 to reach KRW 979 million or USD 269 billion. This reaffirms the strong confidence of our customers and investors in addition to the quality and resilience of QNB Group. The group's regulatory loan-to-deposit ratio remained at 99%. I QNB Group's ratio of nonperforming loans to gross loans is at 2.7%, 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 remained strong at 97%. Total equity increased to BRL 134 billion, up by 10% from September '25. The bank's capital adequacy ratio at 19.7% is comfortably higher than both QCB and the latest file fee reform requirements. In relation to the QNB buyback program, QNB has completed a buyback of 149.4 million shares at a cost of MYR 2.5 up to September 30, '26. The buyback execution remains in progress. We will now turn to Q&A. Thank you.

Thanks, Mark. Maybe before we hand over the floor to the operator to take the questions. I'll ask a few questions to begin with. The first 1 is on deposits. And you mentioned that there was a notable deposit growth, but if I double click on that and look at the custody versus noncustody mix of deposits, there's a very -- there's a stock sort of difference in trends. Cuttery deposits seem to have gone down at least on a Q-on-Q basis. whereas international deposits have gone up. So if you could help us understand what's going on? Why is this kind of stark difference in deposit flows, that would be very useful. So that's my first question. . My second question is around noncredit provisions. So through this year, we have seen a sizable jump in noncredit provisions the bank has taken to the P&L. And then that continued in the third quarter. Just wanted to understand if there is -- what is driving it? And how should we think about this noncredit provision line going forward over the next few quarters? So that's my second question. And my third and final question around margins with the rate hike, which came in for February last month. How should we think about medium-term sort of margin trajectory for QNB. Also this kind of baking in the fact that you probably will see a few rate cuts in Turkey was also coming over to for customizing. So those are my key questions.

This is Naresh for questions. In terms of deposits, Caryversus non-cat deposits what we had, what we have seen is that a return of our usual clients from our international operations as things have normalized. So this is what is driving the deposit trend. And as usual, we go to the source, which would give us the most cost-effective deposit solutions. So as long as we are getting cost effective deposits from our international franchise and London Bader Singapore and Hong Kong, that is something that we would prefer noncredit provisions are specifically for certain customers, which have been classified in Qatar and have letters of credits or letters of guarantees outstanding. Those as long as a customer is classified and since the bank has a commitment to meet those LCs and LGs as and when they fall due. We have to make sure we fully provide those. So those are one-offs. We generally did not have those things in line previously, but those things have come up because particular customers classified, which has these outstanding. In terms of margin trajectory, we expect that the margin for the full year would remain between 260 to 265 basis points. We -- the margin in terms of U.S. Fed increase, it has happened very late in the cycle to impact Q3 even and A lot of that -- our margin has slightly gone down this quarter, primarily because this rate increase was very much priced in by the market. So it did impact the cost of the deposits as we were raising deposits in the third quarter of the year, but it does not yet reflect on the asset pricing because that asset pricing, a lot of it will actually happen in the first quarter of next year. but we expect that we will be within the range. In terms of your talking about Turkey. Turkey, we expect the -- between October and December, the policy rate would go down by 100 basis points each. So 2 cuts we are expecting, but we do not think it will have a material impact for us because it would be very late in the cycle for us to actually move the needle significantly. And so I hope I have covered all your questions.

This very the other is all of you .

[Operator Instructions] Our first question comes from Rahul Rajan.

A few questions on buy side, please. Firstly, on the guidance for this year, if you can please let us know if there's any updates to the guidance at the QNB Group level, Turkey as well as the Egyptian operations? That's number one. Secondly is, from an asset quality perspective, we have seen a higher NPLs this quarter sequentially. So if you can help us understand what's driving this, which geography? And if there is any specific sectors where you see any buildup of asset quality related use and on these lines, if you can also sort of explain or throw some light on how the asset quality situation is specifically in Qatar, given the prolonged conflict? And finally is from your deposits, you have been earlier alluding to the fact that international deposits have started to sort of charge a premium to the extent of around 25 basis points compared to the earlier times. So how are you finding the deposit rates for international deposits, especially like in terms of the premium. Are you still seeing the higher rates compared to local deposits? Just those are my pet questions.

Okay. Rahul, step by step first will go to the guidance. we are advising our guidance for the full year by approximately 1 bps down across both ranges across balance sheet and P&L from profit or profit and loss, we are going from 5% to 7% growth to 4% to 6% growth for the full year now. for loans and advances and total assets, we are going from 6% to 8% growth to now 5% to 7% growth. In terms of deposits, we are actually revising it down to 3% to 4% growth for the full year. Our NIM guidance, 260 to 265 basis points does not change, and our cost of risk guidance is slightly downward at between 70 to 75 basis points. So that is the guidance for the full year. In terms of asset quality sequentially increase in NPL almost, all of it is coming from Turkey. This is expected as the nominal rate and the real rates are extremely high. And we do expect rates to come down, but we expect that Turkey would be the primary driver for increase in the NPL even in Q4. in terms of what's happening in Qatar because of the conflict, as we have explained is that -- the conflict is primarily focused on or isolated to oil and gas sector. The non-oil and gas economy is continuing to perform much better than expected and we do not have any major exposure of the oil and gas sector. That's why we are so far not seeing the translation of the conflict directly into our -- what we have on our balance sheet or what we have in our P&L what we -- where we do have to keep an eye on and we keep a rerating is the hospitality sector, which is a very small portion of our balance sheet, and we are making sure that we are taking adequate provisions as and when things arise. In terms of international deposits, we need to keep in mind that when we were talking about slight premium, it was back at the height of the conflict in the first quarter, particularly in the month of March and April. Those things have slightly dissipated now. And what is driving the slight deposit cost right now is the interest rate outlook where market is expecting interest rates to actually go up. So if we are trying to increase the duration of our deposits at this point in time, we have to slightly pay up based on the current interest rate outlook, but particularly for dollars which is markets are expecting some further rate hikes to come in. So that is what's primarily the reason for the increase in the cost of deposits.

Sorry, if I could just ask 1 more question, please. Just on the fees side of things, we have seen a strong fee generation on the international franchise, but I think there has been some weakness in fees and FX on the domestic caterifranchise. So how do you see nonfunded income as such in 4Q and also getting into 2027. .

International continued to perform as slightly higher than the balance sheet growth that they are projecting for the full year. in terms of cat fee income, FX, as we say, is cyclical. Q3 is slightly lower. But other than that, we are not aware of any major changes in outlook for Katri. It's more or less in line with the balance sheet growth. .

Our next question comes from Murad Ansari.

Yes. Just really 2 quick questions on -- firstly, on deposits. So for a bank like your side, which has access to international global I'm guessing you have more ability, flexibility to raise deposits from international markets. But I just wanted to get some sense on what's happening on the domestic market. What we've seen as your country operation deposit base has has come off versus the last quarter. I just wanted to get a sense of how you're seeing the domestic market and funding cost. And also, I think when we look at the breakup on the related party side, I think the GRE-related deposits have come off a little bit. Is that something that's more temporary or there is more reliance on -- from the government on these deposits now that the revenue base has obviously on the petrochemical side on the LNG side has been impacted. And secondly, I know it's kind of a moving number, but the hyperinflation charge this quarter was quite low versus what we've seen as an average in the first half during the first 2 quarters. So just some overview, if you could help us explain what happened here and what we expect in the fourth quarter. Thank you,

Thank you, Murad. In terms of deposits, what we see is some cyclical impact being reflected on the balance sheet. And again, we can speak for ourselves and our total deposits that we put in the system as part of GCB reporting compared to December in terms of total deposits, we are up -- we are almost flattish, slightly positive and offset of that is coming in from -- the increase is coming in from our international operations. Again, I would rather wait for the September sector data to come in before commenting further as to what's happening in the entire sector. In terms of the GREs, the numbers have come down again. if somebody has a deposit and wants to use it for whatever reasons, we have obligation to ensure that, that money is available to all. And it's that job to ensure that we give guidance or we gave the numbers that we committed to certain numbers, growth numbers, and we will need -- I'm trying to make sure that we meet those numbers. Avention fairly simple. The interest rates -- the inflation rate in Turkey has come down. So from a quarter-to-quarter basis, if we come at when they started the year the 3 months average inflation in month cumulative inflation was 10%, which came down in Q2 to 7%, which has come down in Q3 to 5%. This is what is driving the high inflation number lower. Our team expects that the inflation number would remain. It's now for the first time in 30 years, it has gone below 30% and it's at 29.7%. Our team basically expects that it would stay at this number for the rest of the year. So for Q4, we expect slightly hyperinflation charge because of -- if the number stays the same, inflation rate remains the same, but our profitability will increase the total equity and the total nonmonetary position, which will result a slightly higher charge for the period. But it is simply directionally, interest rate was down and -- sorry, the inflation rate was down and was down significantly more than the market was expected.

Our next question comes from Chira Gosh.

This is Chirag from Sekaran. So a few more questions from my side is -- if you can give us some clarity on the Egyptian operation, I mean at least the ground reality, how are you seeing it because not much was shared this time. So if you can give some clarity on that the borrowing appetite, asset quality at least directionally. Second question is how is the borrowing appetite within the Qatari market, basically. So you clarified that except in the non-oil and gas sector, there is no asset quality concern, but I want to know from a borrowing appetite perspective, -- how are you seeing it? How are the economic activities basically driving that borrowing appetite on those non-oil and gas sector? And third is both Turkey and Egypt, how high is your currency risk as -- so these are my 3 questions.

Thank you, Chir[Audio Gap]. So in terms of Egypt, we did not put out the page in that we usually reserved for Egypt back in -- on Thursday because Terje was a holiday in Egypt and their profitability, they could only disclose on tuna mornings to be replaced the full presentation. And if you go down to Egypt, you to our presentation, you'll see the Egyptian numbers are there. It's just we were under regulatory Bargoa this was lifted on Sunday. Profitability, local currency funny terms up 24%, 25% year-on-year September. -- total assets, dollar terms, up 19%, local currency terms, up 29%; total loans up 16%, so exceptionally strong performance coming in from Egypt. It is 1 of our key highest risk adjusted or ROE franchises continues to remain there. For the full year guidance for Egypt, we -- they have slightly upgraded profitability. They expect 20% to 24% for the full year compared to 19% to 21% back in Q2, loans, 24% to 26%, deposit similar and total assets similar. So it's 1 of our very strong franchises. In terms of borrowing appetite in Tata, total loans in Qatar are up 3% for us. again, it's business as usual borrowing because of the slowdown, we are not seeing very large transactions, but what we see is underlying growth in borrowing in terms of various sectors that is happening. And in terms of currency risk in both of these markets, underlying currency risk in both of these markets is effectively the original investments that we have done in these franchises because that cannot be hedged away. Those respective franchises ensure that their currency risk, whether on the positive or negative side remains as close to 0 as possible.

Okay. That's a -- just 1 quickly. Is M&A chapter closed or the bank is still in lookout for M&A activities? .

There is nothing that we are looking at this point in time, nothing further to.

Our next question comes from Waruna Kumarage.

A couple of questions. The first 1 is on the guidance. I'm sorry, I joined a bit late. I just want to know if you could reiterate, I mean, if you have mentioned the guidance, if there is any change in terms of the key line items.

Yes, Waruna, we will reiterate the guidance. So we have slightly adjusted downwards for key items by approximately 1% on both sides. Profit is now 4% to 6%. Total loans are now 5% to 7%. Total deposits are now 3% to 4%. Total assets are now 5% to 7% guidance, which has not changed is the cost of risk and the NIM. We expect it similar 70 to 75 basis points in terms of cost of risk and NIM will be 260 to 265 basis points. .

Okay. And going back to the loan growth so far and going forward, Am I right in interpreting that by looking at segmental information, the Qatar loan growth is kind of muted this year year-to-date? And then do you expect this to recover somewhat in the fourth quarter?

W don't expect any significant change between now and December for the Qatari loan book because as we are aware, there are the geo particular uncertainties, it would grow, but between 2% to 3% range. primary growth in our loan book is going to come from our international operations, particularly for the first time in many years, we are growing our loan book in London, Paris and our other Hong Kong and Singapore branches. And of course, our 2 key franchises in both Turkey and Egypt are increasing their balance sheet growth is much faster than what are bidding on the country side.

[Operator Instructions] Our next question comes from Jon Peace.

I think I got all of your guidance down, but I missed the guidance for Turkey, please, in local currency terms, if you could just give that .

Yes, John, the guidance for Turkey is profitability, 10% to 15% up, loans 30% to 35%, deposit, 25% to 30% and total assets, 25% to 30%. .

Our next question comes from Chuck Alcami. .

Just want to hear your thoughts about the outlook for cost of funding. You talked about basically an increase due to basically forward-looking to the curve. But how do you see that in terms of, I would say, further increase managing that cost of funding? And how do you see that directionally impacting the NIMs. So if you looked at Q4 and Q-over-Q, if I'm getting it right, it's going to be slightly lower to achieve the full year guidance. And from that exit NIM, are you looking at next year outlook, the positioning of the balance sheet is more basically toward -- will be negatively or positively positioned for the outlook for the rate. I want to hear your thoughts around it.

So in terms of how our NIM works, what -- as we explained earlier, -- it was basically we -- on our asset side, we have majority of our loans, almost more than 2/3 in dollars and then primarily linked to what we call sulfur term so far. And a lot of them have lumpy repricing in Q1 and Q3 of the year where it's not that everything prices there, but a lot of big chunks of loan reprice at that time. So what happened in Q3 was the -- it was widely expected that the gates are expected to go up. And as and when we are trying to book in lock-in 6 months money, we have to slightly up based on the forward rate guidance. That is what slightly negatively impacted our margins this quarter. Again, we don't have the crystal ball, but there is -- it's likely that interstates are going to go up with 1 more time before this year. And that may, again, slightly impact our total NIM that might come in at the lower end of the mistake. We're talking about between 260 to 265 basis points. Having said it, in terms of our balance sheet, back in Q1 when the repricing hits on the asset side, we will have a benefit of basically making sure that whatever we have lost in in Q3 and Q4, we will make up for that in Q1. So I don't have -- I will not be able to give you full year outlook for the year 2027 at this point in time. That will be part of our Q4 call. But the way we have managed our balance sheet is we have -- because of the way our balance sheet is structured, our deposits are primarily time deposits and our loans have a significant amount of floating rate loans, which reprice every 6 to 9 months, we will be in similar NIM ranges after the repricing has happened.

Got it. Got it. Very clear. And just 1 follow-up point on the hyperinflation. You said like if inflation maintained as it is for Q3 going into Q4, you still have a slightly higher charge of hyperinflation because of higher equity. Is that what you mentioned?