Dukhan Bank Q.P.S.C. (DUBK) Earnings Call Transcript

Hello and welcome to Dukhan Bank. Please note that this call is being recorded [Operator Instructions] I'd like to hand the call over to Shahan. Please go ahead.

Thank you, and hello, everyone. I want to welcome you to Dukhan Bank's Second Quarter and First Half 2026 Financial Results Conference Call. So on this call from management, we have Osama Abu Baker, the bank's group CFO; Riaz Khan, Head of Reporting and Budgeting and IRO. So as usual, we will conduct this call with first management reviewing the company's results followed by a Q&A session. I will turn the call over now to Osama. Please go ahead.

Thank you, Shahan, and good afternoon, and welcome, everyone. At first, I would like to briefly frame our performance within the broader economic and sectoral developments and pattern during the first half of the year. Continued geopolitical developments introduced a degree of uncertainty across the GCC countries, with implications on energy markets, trade flows and economic activities. Within this context, the group has maintained stable operations, supported by well-established operating framework and prudent risk management. These factors have enabled the bank to provide consistent, secure and reliable services to its customers. The bank business continuity and crisis management frameworks remained integral to its operational resilience. Through disciplined execution, robust infrastructure and ongoing coordination with regulators and relevant stakeholders, the bank has ensured continuity of operations while maintaining a strong controlled environment. The banking sector continues to demonstrate some fundamentals characterized by strong capitalization and liquidity levels. Atal Central Bank also has introduced a range of precautionary measures aimed at supporting liquidity conditions and preserving financial stability. These measures provide an additional layer of assurance for the continued smooth functioning of the financial system. During the first half of this year, we progressed well on our strategy, focusing on enhancing liquidity measures, risk management protocols and selective growth. Additionally, we continue to deepen our engagement within the broader financial ecosystem through targeted partnerships and collaborations supporting innovation across key areas of the sector while contributing to the development of Qatar's digital economy. At the end of the first half of the year, our liquidity remained strong with all key ratios above regulatory thresholds. Total deposit base remained at historic levels, underscoring customers' confidence answering of the bank's value chain. Our group's total assets reached the highest level at QAR 129 billion, underscoring balanced growth across our portfolio. However, our profitability remained flat versus last year to reach QAR 813 million. Our capital adequacy ratio stood at 18.6%, well above the minimum requirements required by the Central Bank. These results reflect a disciplined approach to growth underpinned by a well management on sheet, a diversified financing book and a stable funding base, continued customer confidence and a clear focus on operational efficiency and asset quality remain central to sustaining this performance. Our focus for the rest of the year 2026 will remain firmly aligned to our strategy, i.e., building a leading digital enabled bank, centered on exceptional customer experience, delivering sustainable well-balanced growth with continued discipline on capital liquidity and risk, strengthened our people, culture and capabilities, ensuring Dukhan Bank remains a place where talent thrives. creating long-term value for shareholders while contributing meaningfully to Qatar's economy and social development. For the rest of this year, we expect a low single-digit balance sheet growth led by wholesale and private banking. Profitability growth is expected to mirror the trend supported by stable man we will maintain a conservative provisioning approach continuing to build buffers. I will now turn it over to Riaz for a detailed review of the quarter and financials.

Thank you, Shahan. Let me begin with a brief overview of the group's balance sheet performance as at the end of June 2026. Our total assets reached all-time high at QAR 129.2 billion, underpinned by financing assets of QAR 94.7 billion, representing 73% of the total asset base. Investment securities contributed 20% of the total assets and reaching QAR 26 billion. On the funding side, we continued our efforts to diversify while leveraging long-standing relationships with clients and maintaining a balanced maturity profile. This led to a growth of 7% in the group's customer deposits reaching QAR 94 billion. Hence, what we maintained a regulatory loans-to-deposit ratio of 95.6%. with both the LCR and NSFR comfortably above the regulatory thresholds. This demonstrate banks sound liquidity management. Also, nonresident deposits remained at minimal of 7% of the total deposit base. This is in line with our strategy to focus on stable domestic funding sources. Now turning to profitability. For the first 6 months of 2026, the bank reported a net profit of QAR 813 million, edged up by 0.2% versus the same period of last year and supported by a robust 7.4% increase in the net banking income. This uplift in the net banking income reflects the group's continued emphasis on revenue diversification and the strengthening of nonfinancing income streams. prudent management of funding costs even in difficult external conditions provided an additional layer of support. We maintained -- or we remain committed to protecting our margins and managing the cost of funds efficiently. Our NIMs are currently stabilized at 2.1%. Operational efficiency also remained a key strategic focus with continued optimization efforts, enhancing group's overall profitability. These results highlight the group's resilience and its ability to sustain in an evolving operating environment. On the credit quality, NPL ratio was reduced to 3.9% from 4.2% at the end of 2025. Stage III coverage ratio increased to 76.2% from 75.7%. The coverage would be over 95% when including the effect of eligible collaterals. Stage 2 loans represented 8% of the gross loans with a solid coverage of 12.3%. Our financing book remained well diversified wherein the government exposures account for 21%, reflecting strong sovereign linkage and stability. Real estate financing represents 22%, Commercial lending contributes 14% while consumer financing adds 9% supporting the retail growth. Contracting remains minimal at 3%, while industry and manufacturing together makes up 3%. Finally, services and other sector represents 28%. Exposure to government-related entities account for 15% of the total financing book at the end of June 2026. GRE exposures are currently reported within their respective sector classes. Our capital adequacy ratio stood at 18.6%, well above the regulatory minimum requirement of 14.63%. On the tax front, based on the assessments performed for the period 2026, it was concluded that the parent company and its subsidiaries that our tax residents in State of Qatar are not subject to Pillar 2 requirements. Accordingly, there are no impacts on group's condensed consolidated interim financial statements. In summary, our financial performance reflects the strength of our fundamentals, strategic clarity and prudent financial management. We remain focused on sustainable growth, margin preservation and long-term value creation for our stakeholders. With that, we now open the floor for your questions. Thank you.

[Operator Instructions] Your first question comes from the line of Salome from Bloomberg Intelligence.

Hello, can you hear me?

Yes, we can hear you.

Okay. I have 2 questions. The question number 1 on the deposit and credit growth. If you could please provide the breakdown for the first half flows what was the share of the public sector, especially on the deposit side? And the second 1 on the capital allocation and capital distribution plan is any potential figure over the second half of the year in terms of the asset quality migration once the regulatory concessions are lifted. If you could give us any idea on that part.

Okay. So in terms of the deposits, the first question, So we see a robust growth in our deposit base on a year-on-year basis. We added almost 7% on the total deposit base. They are mainly from the wholesale funding side, wholesale banking means corporate banking, government banking and a mix of private banking. I think there is a note we are mentioning in the segmental reporting, where you can see the liabilities breakdown, and you can assess the exact contributions from each segment per se. Now in terms of the credit quality, as you would have noticed, we have remained a bit aggressive in terms of our, let's say, conservative in terms of our provisioning, and we are continuing to build provisions as you know, the current situation is quite volatile, and there is a lot of things happening. So what we are doing is we are remaining conservative in terms of our credit provisioning. We are continuing to build buffers for any unprecedented or any unknown or any unwarranted credit quality issues. So it's the situation right now, it's a wait and see, and we are continuing to build provisions we will -- in the next 2 quarters also, you will see provisions flowing through. We are targeting a cost of risk close to 60 bps by the year-end. So that will continue to progress. And that's how I can sum it up how things will look like in the future.

And 1 more quick follow-up on the capital distribution. Is there any triggers that could change the payouts or distribution plans?

If you are asking about the capital allocation and the way I understand is more about the overall capital adequacy ratio. So in that case, we are well ahead of our minimum requirements. We don't foresee any hiccups there, and we'll continue to remain robust at that front.

Your next question comes from the line of Shreekant from DPA.

First of all, congratulations on cortisone for the opportunity. I have a few questions. So in previous conference call, full year loan growth guidance was around 3% to 5%. Our bank has done well in first half of year. So is there any change in your loan growth guidance? Or you expect loan growth to be in for second half of the year. Secondly, regarding based growth, again, a very strong quarter. So just wanted to understand what was the driver for deposit growth in second quarter. Early net fees and commission income jumped to QAR 130 million. So just wanted to understand, is there any one-off involved in this? Or we can expect a similar run rate going ahead? And lastly, on dividend plans, you haven't disclosed any interim dividend in first half of year. So is there any change in dividend policy? So any clarity on this will be really helpful.

Yes. Thank you for your questions. So if I take the first question, it is more about the loan book growth. So if you remember the guidance during the earnings call today as well as the last time quarter 1 earnings call, we identified or we highlighted that we expect our balance sheet to grow by mid-single digit or somewhere lower mid-single-digit growth. So that growth, I think, it's -- we continue to estimate because there are some deals which came a bit earlier than what we expected. And there are certain deals where we expect certain repayments to flow through in the coming quarters. So 3% to 5% or per, say, 1% to 3% could be a good number on that front as well as when we talk about the deposits at certain times, we try to build buffers because the situation was quite volatile in the second quarter, and we were continuing to build additional liquidity buffers, and we remain successful on that front. While maintaining our NIMs or stabilizing our NIMs at 2.1%. So that itself is an achievement. However, going forward, I think the estimates or the anticipation is still in a mid-single-digit range. The deposits will sustain on a year-on-year basis. Then on your third question about the fees. Fees again, was an interesting quarter where there has been convergence of certain things or certain activities or certain deals which were in the pipeline. They got converged at the same point of time, certain deals within the treasury segment, certain deals within the Wholesale Banking segment. certain even early settlements also happened during this quarter. So they all converged at a certain given quarter, and that's how there has been a significant increase on a quarter-over-quarter basis or a sequential basis. So going forward, I think for your estimation purposes, a good reference could be an average of the 2 quarters for -- if you want to estimate for the next 2 quarters, that's what I can say. Exactly like there has been no one-offs, but there were certain deals happened and got converged. In terms of -- on the dividend policy, maybe Osama will say.