Qatar Islamic Bank (Q.P.S.C.) (QIBK) Earnings Call Transcript

Hello, and welcome to the Qatar Islamic Bank conference call. Please note that this call is being recorded. I will now turn the call over to our moderator, Shahan Keushgerian. Please go ahead.

Hello everyone. This is Shahan from QNB FS. I want to welcome you to QIB's 4Q and Fiscal Year 2025 Financial Results Conference Call. So on this call from management, we have Gourang Hemani, the bank's CFO; Vinay Balakrishnan, Head of Business Reporting and Budgeting and Investor Relations Officer. 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 Vinay. Please go ahead.

Happy New Year, and good day, everybody. This is Vinay here, and thank you for joining the Qatar Islamic Bank's 2025 Annual Results Call. Qatar Islamic Bank yesterday announced financial results for the fiscal year ended 31st December 2025. Net profit attributable to the shareholders reached QAR 4,835 million for the fiscal year 2025 compared to QAR 4,605 million for the year 2024, marking an increase of 5% over the last year. The basic earnings per share for the year ended -- for the year 2025 is QAR 1.95 compared to QAR 1.86 for the previous year. QIB's Board of Directors have proposed an additional cash dividend distribution to shareholders of QAR 0.5 per share, that is 50% of the bank's normal share value. After considering the interim dividend of QAR 0.4 per share, the total cash dividend for the year is QAR 0.9 per share, which represents an increase of 12.5% compared to the previous year share of dividend of QAR 0.8. The proposed dividends are subject to approval by the Qatar's Central Bank and QIB General Assembly. The total assets of the bank announced standard QAR 221.1 billion as of 31st December 2025 compared to QAR 200.8 billion as of 31st December 2024, representing a growth of 10.1%. The growth drivers were from financing and investing activities. The financing assets have now reached QAR 138.5 billion, having grown 10.5% compared to last year. While investment securities have now reached QAR 60.2 billion, that is up 13.7% against December 2024. Customer deposits at the same point of time now stand at QAR 142.7 billion as of 31st December 2025, with the financing to deposit ratio at 97%, which remains below the industry average, reflecting the bank's strong liquidity position. The net financing margin for the year represented by financing yields less cost of deposit was stable at 3.5%. Net fee and commission income for the year ended 31st December 2025 was QAR 904 million up by 4.2% as compared to 2024, which continues to reflect the bank's healthy core operating and banking service activities. The bank continues to strive to operate improve efficiency through digitalization and automation, supported by efficient cost management, helping it to contain its annual operating expenses at QAR 1.08 billion, which is 6% lower than last year primarily due to the impact of deconsolidation of a subsidiary, and thereby lowering the cost to income ratio to 16.3%, which continues to remain the lowest in the Qatari banking sector. The bank has taken advantage of the good operating performance and has continued to build total impairment provisions of QAR 708.6 million. The bank was also able to improve its Stage 2 coverage ratio to 9%, and this is 8.3% as at 31st December 2024. Stage 3 provision coverage has been maintained at 95% and Stage 1 coverage ratio stands at 3.04%, which is well above the industry average. These actions taken by the bank reflect the bank's strong risk management framework as well as a conservative prevailing policy. QIB was also able to reduce the ratio of nonperforming financing assets to total performing assets to around 1.65% as at 31st December 2025. These results demonstrate the bank's ability to generate strong, stable and sustainable profitability for our shareholders with a return on average equity of 16.6% and a return on average assets of 2.3%. QIB continues to remain successful in maintaining strong capital positions and at the same time, improve dividends and generate strong return on equity to the shareholders. The total shareholders' equity has now reached QAR 29.6 billion, an increase of 9.1% compared to 31st December 2024, improving the total capital adequacy as per Basel III guidelines from 20.9% to 22.2%, which is well over the minimum regulatory requirements. In the fourth quarter of 2025, the bank moved its head office to a brand new premises at QIB towers in West Bay Doha. The bank has continued to advance its digital transformation by launching new mobile banking features and enhancing our customer experience across all channels. Having taken through the key highlights of the financials, we can now go to the Q&A session. I'll hand it over to Shahan. Thank you.

Thank you, Vinay. So we can now go to the Q&A session, please.

[Operator Instructions] And our first question comes from the line of Chiro Ghosh with SICO.

This is Chiro Ghosh from SICO Bahrain. I have 3 questions. The first one is on the margin side of it. So it looks like that the fourth quarter margin was slightly weaker than the third quarter. But if you remind in third quarter conference call, you are saying that NIM seems to have stabilized. So if you can give some color why deteriorated? And how should we see it panning out over the first half of 2026? That's on the NIM. Second one is on the fee income. So your loan growth was quite commendable, quite strong. But the fee income on fourth quarter perhaps did not reflect something similar. Was it a quarterly blip? Or how should we see that? And the third is the asset quality undoubtedly has further improved quite strongly. So just wanted to understand which sector led to the decline in nonperforming loans. Yes, these are my 3 questions.

Thanks, Chiro. Good morning, everybody, and happy new year to all of you. This is Gourang Hemani, the CFO. I'll take one question at a time, though lot of them are quite related. So yes, when you say, Chiro, when the margins are lower, yes, if you do arithmetical calculation, the margins will appear to be lower due to a couple of reasons. First of all is a lot of assets booking were done at the end of the year, which really skews up the averages when you take the averages. However, more importantly, a large part of the growth, in fact, almost all the growth in Q4 financing is coming from basically more related to accounting rather than real growth in the financing book. It's basically accepted that the bank have taken against certain deposits have gone up by roughly around QAR 6 billion. These are non-remunerating assets. The corresponding leg of the asset is sitting in the other liabilities, which you'll also see has gone up by QAR 6 billion. So if you take that out, you will see that the margins have really not been -- have really not moved significantly. They have dropped slightly, but that's also due to the fact that a bit of the timing issue in terms of the repricing of the rate cuts that happened in Q4. And as I also mentioned earlier, is late booking of assets in Q4. Fee income, as I said, so again, while you can believe that fee income is should follow the financing book, but I just explained to you on that one that it has got not much to do with the fact that this is not a real financing asset but more of an accounting of acceptances. In terms of asset quality, I think our asset quality has been fairly stable, while the ratio has dropped. That's predominantly because of the fact that the asset book has gone up. But if you look at it on the absolute numbers point of view, our NPLs have remained flat almost throughout the year at around QAR 2.4 billion, QAR 2.5 billion. So there's been hardly any net new NPL generation. There were some new NPLs, but then we had some decent recoveries in the year as well. So overall, our nonperforming assets have really been fairly flat. So a large part of the drop in the nonperforming assets ratio is purely because the base has gone up while the absolute levels have remained almost the same. Have I answered your question?

No, it did. Just a small follow-up. So the acceptances, I mean, please help me understand. So how does this contribute because if it's not going to...

Acceptances, these are -- these have been more -- we have been successfully generating really some long-term funding. And as a guarantee to the depositor, we have done some acceptances for it, which basically under the accounting standards, have to be shown under financing and have the corresponding leg is to be in the other liabilities. So that's what contributes on the both sides of the balance sheet.

To summarize, it's the same reason why NIM is looking weaker, same reason fee is weaker and the same reason NPL ratio has come down, right...

NPL ratio has come down because of overall increase in the assets, which is including the acceptances as well as the growth in the other growth in the assets that has happened for the full year. I'm not comparing quarter-to-quarter. But I'm just saying if you take the full year quarter-to-quarter, yes, but full year is basically you have growth in the financing plus acceptance, while the absolute level of NPF have remained flat.

And your next question comes from the line of Jon Peace with UBS.

So first question, please, is, do you have any elements of guidance for 2026, whether it's financing growth or margin or cost of risk, et cetera? Second question, please, is just your capital ratios are extremely strong relative to your balance sheet growth. How do you think about sizing the dividend for this year? And I know on some previous calls, we've discussed possibility of a buyback. Is that something that's featured at all in your discussions? And then finally, just a couple of real technical ones. You give us your net margin on financing. Could you give us your all-in margin, including on the investments for 2025? And just in terms of the presentation of the numbers, I know at the 9-month stage, you had the discontinued activities line. I understand that QInvest is now in associates. So just for comparability between the 9-month figures and the full year figures, should we move that discontinued line into associates and then it's comparable.

Yes. Going on the guidance side of it, I think we believe that 2026 the financing book would grow again in the range of 5% to 6%. If you look at it, that's the guidance we gave for this year. And if you take out the effect of acceptances, which I was talking about QAR 6 billion we ended up around the same growth range of about 5.4% -- 5.3%, 5.4%. So our guidance for 2026, all also remains very similar. We believe that 5% to 6% is a fair medium-term growth range. We'll have to see what is the 2027 onwards, maybe the impact could be different because of once the North Field expansion comes in and we see how the government injects the incremental revenue into the system that could provide a further boost to the economy and the domestic growth. But overall, we believe that our guidance at this point of time for next year is financing book growing by 5% to 6%. NIMs, we expect the NIMs to remain overall around the same level, maybe we -- what we have seen is that the funding side of it, especially on the deposit side, have remained a bit sticky. I think the -- especially for the fourth quarter, I think it's a combination of the timing impact. And usually, what we have seen is that corporates take advantage of the fact that the banks are willing to pay a slightly higher on Q4. So that's the reason why the twofold cost of deposits tend to be slightly higher than normalized one, if I could say. So we believe NIMs would be more or less the same, but maybe a couple of basis points drop, but nothing very significant that we are expecting. On the cost of risk side, as I said, we've been saying for quite some time. And if you have seen even the results of this year as well. Cost of risk for our base, it's -- we are very well provided on a need basis, if you look at it even last year, majority of our cost of risk was allocated to Stage 1. We did a significant downgrade in Q4 of 2024 to really allocate more to Stage 3. But in 2025, our net NPL generation will actually minor, slightly negative, but still -- so we didn't have any much. So from the need -- and we are very well provided. We are 95% covered on Stage 3. We have Stage 2 coverage has been improved to 9%. The Stage 1 coverage is at 3%. But if you take out the acceptances, it will go up to 3.2%. So overall, from the need base perspective, the cost of risk remains -- the need remains low. However, we continue to, as we have been doing, we continue to give you how the operating performances are and if there is an ability to let's say, allocate to provisions. We do -- I think if you look at it, 2025 is a very classic example of how our conservative risk management policy helped us. We were able to absorb the entire pillar to tax-related impact under the other provisions without really having any major impact in terms of our provisioning requirement or tax requirements. So I think our prudent conservative policies have allowed us, and I think we will continue to follow the same. So on a need basis, I have really very little guidance to give at this point of time. Our asset quality remains to look strong. So I can't really -- and have enough buffers under Stage 1, et cetera. We have room to absorb additional asset quality challenges from our existing coverages. However, it will all be depending on how the operating performance pans out. Going to the second question on the capital ratios. Yes, I think if you would notice that we have already improved our dividend from 43 payout ratios as a dividend per share as a percentage of earnings per share from 43% last year to 46% overall 12% increase in the dividend payout. There is a room to pay out more. However, it's the Board which has the prerogative to take the decision. We -- again, we had provided the multiple scenarios and they chose what they thought was the most optimal one from the bank's perspective. In terms of the buyback, as of now, there is nothing which the Board has formally decided that can be shared with at any point of time. However, the Board is cognizant of the fact that we are very well capitalized and then there is room to support our investors. However, relevant decisions will be taken at the right point of time and shared with the market if there is anything to share on the buyback front. But nothing I have at this point of time. In terms of your overall margin that you talked about rather than taking investments and everything. I think it is in the range of about 2.93%, 2.94% for the full year. So if you take all the investments and you take all the cost of funding including Sukuk and the bank borrowings and everything, it is around 2.93%, 2.94% range. I don't have the exact number, but that's what is there in the back of my mind at this point of time. Okay? In terms of the 9 months, yes, you are right. The fact that on the classification of QInvest share, in order to do a fair comparison, yes, you can move the discontinued operation numbers to associate number to get a fair comparison in terms of what is the thing. The fact that it became an associate effective beginning of the year. That's the reason why everything has been moved to associate in the full year financial statements. Did I answer your questions, Jon?

Yes, perfect.

And your next question comes from the line of Adnan Farooq with Jadwa Investments.

I just have a couple of questions. One, just to clarify on this QInvest movement. So in the 9 months, you had a loss from discontinued operations of around QAR 40 million. So what you are telling us is the best way to look at it is to adjust it with the year-end number of loss from associates or profit from associates. Is that correct understanding?

Yes.

And the second, just wanted another clarification on the acceptances that you mentioned. These -- what sort of tenor do these have?

These are long-term ones because these are long term -- these are related to longer-term deposits. So they are all in the range of 3 to 4 years maturity.

So basically, your NIMs and all these ratios that you answered to Chiro basically will remain impacted by these for the foreseeable future.

Yes, at least for next couple of years, I see them remaining on the balance sheet.

And your next question comes from the line of Dan Mikhaylov with Vergent Asset Management.

Congratulations on the results. I just had one question -- 2 questions about kind of on the implications of the move of QInvest to associates. First of all, kind of what is the capital charge arising from that? And the second one is that if I'm not mistaken, you've booked about QAR 0.5 billion of tax provisions in relation to QInvest, like should QInvest not have been sold, you'd have had to incur a higher tax charge. Would you be looking to reverse these provisions in 2026?

Okay. Answering to the first question on the capital charge implication related to QInvest -- we had done our analysis, and one of the key reasons of moving QInvest way was not only for the fact from the tax point of view, but also from the CAR point of view, it was a positive contribution. Multiple reasons. First of all is that here, there are certain tax charges that are certain risk weight charges and some deductions that we were obliged to take because of the nature of business, which QInvest was in. Currently now as an associate, it is taken at a 250% risk weight. However, on a net-net basis, it did positive contribution in terms of our CAR rather than having a negative implication. In terms of the second question related to tax provision, it is QAR 540 million, as we have mentioned in our financial statements. Unfortunately, the GTA has not yet published executive guidelines. And we believe it is prudent that we retain them. We evaluate once the guidelines are for executive regulations are formally published. We do an assessment in detail in terms of what is the implication. And then, yes, it is available either to be reversed or to utilize for any other purposes. However, we believe that we have met the requirements of the transition rules that are available and -- but given the fact that we had the ability to be able to take the conservative approach, which the Board and the management has been taking on a consistent basis on various aspects, whether it be asset quality or any other things, we continue to do the same. So at this point of time, it remains a liability. We'll see and evaluate as to what this liability translates to once the final executive regulations are published and the full impact analysis is done.

Do you have a rough time line for when you expect those regulations, these guidelines to be published? Is that a Q1 '26, Q2 '26, second half of the year?

I have no clue on this one because that's something that is beyond our prerogative. Given a choice, we would have loved to have it before the end of the year. So we would have had more clarity. However, we are where we are.

And your next question comes from the line of Andrew Brudenell with Ashmore.

Quite a lot has been answered, but maybe if you could just talk about the real interest earning asset growth. You've got this 5% to 6% growth target which you essentially hit this year as well. Obviously, that's picking up, and you're not including the North Field expansion until, as you say, you see where that capital goes. What are the areas you're seeing driving credit demand, which customer segments and in which sort of corporate sectors, how much is government? And where are you seeing the interest in credit demand, please?

Yes. So if I look at the growth, if I break down the financing book growth for 2025, we almost have roughly QAR 3 billion coming from the government side. A lot of it was a long-term one. So these are more project financing, et cetera. We had Personal Banking, which is our strength as an Islamic Bank. That has been one of the key contributors that grew by almost roughly QAR 3.3 billion, then we had a bit of growth in the real estate sector and what we saw some reductions coming in from MBFIs and commercial sectors that we saw that were reduction. So overall, we see businesses growing in the -- which are the main key areas in the government, as I said -- main key areas, as I said, once the government starts various projects, et cetera, and they come in as a part of North Field expansion, driven, let's say, revenue driven. I would say once the revenues come in, I think the government will be embarking on more projects, some inside Qatar, some outside Qatar, where banks will have an opportunity to participate. And again, Personal Banking will again continue to remain one of the key sectors and we also expect further growth to come from services sector and some of the industries which are related to hydrocarbon-related industries. These are the primary sectors that we believe the growth will come from.

Okay. Presumably, the North Field expansion would be more of a 2027 story in terms of credit demand. Is that alright?

Yes, exactly. That's what I said. So that's why I said for this year, that's why we put 5% to 6% for 2027. We'll have to wait and watch how does the North Field expansion revenue get allocated by the government in terms of the share of domestic versus their international investments, et cetera.

Yes. And then just one...

We just lost connection with the previous question. Okay. Let's go to the next. Our next question comes from the line of Bijoy Joy with QIC.

My question is on asset quality. See, given you are adequately provisioned, can we expect -- and you have mentioned that there have been some recoveries. Can we expect the recoveries to continue? Or how do you see the trend for this year?

See, in general, we have been following a very conservative policy, where we cover 95%. So you effectively for every $100, we recover, we can -- we basically have recoveries of 95%. So it's a continuous process. We will continue to see some recoveries as a part normal process. We did some had some -- I think '24, '25, both the years have been excellent years in terms of the recovery. So we continue to remain hopeful in terms of it, but difficult to give you any guidance on what would be the recovery. Overall, we believe our asset quality has been fairly stable and very strong compared to the market, very well covered. So I think we will continue to remain in that zone at least for 2025, that's what we believe -- 2026, sorry.

Okay. And second question is on the lending growth. So given you're expecting 5% to 6%, if not really kicks in, what is the expectation? Like how much more growth can translate for the private sector banks?

I think I just answered it. I said a lot will depend upon how -- what's the allocation policy of the incremental revenues that the government is going to generate I would not like to put any number to it, we would like better to have a better guidance. Sometimes it can be positive, sometimes it could even be negative. They could decide to repay some of the borrowings that they have done from the banking sector or they could decide to go about to say, new projects -- to fund new projects. So I think that's a question which is very difficult to answer. We saw when after the FIFA, government suddenly started coming in repaying the banking sector and that really pulled down the public sector credit. And while the private sector credit grew in 2023, 2024, but most of it was kind of absorbed or eaten away by the fact that there was a public sector repayment. So we'll have to wait and watch. I would avoid giving any guidance on the impact of that.

Our next question comes from the line of Andrew Brudenell again with Ashmore.