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

Hello, and welcome to the Qatar Islamic Bank Earnings Call. [Operator Instructions] I will now turn the call over to Shahan Keushgerian. You may begin.

Thank you, and hello, everyone. I want to welcome you to QIB's Second Quarter and First Half 2023 Financial Results Conference Call. So on this call from management, we have the bank's CFO, Gourang Hemani; and 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 now turn the call over to Vinay. Please go ahead.

Good afternoon, everybody, and welcome to the Q2 2026 results call of Qatar Islamic Bank. We'll quickly take you through the main highlights for the first half results for 2026. We are pleased to inform that Qatar QIB has reported a net profit attributable to shareholders of QAR 2.23 billion for the first half of 2026, representing a 2.3% growth against the first half of previous year 2025. The net profit attributable to shareholders for the second quarter of 2026 was QAR 1.24 billion, representing 4.2% growth against the corresponding quarter of the last year. The total assets of the bank now stand at QAR 234 billion, which is up by 5.9% versus December 2025 and up by 10.4% compared to 30 June 2025. Core activities of the bank represented by financing and investing activities continued to grow in the second quarter of 2026. Financing assets as at 30th June 2026 now stand at QAR 156 billion, having grown by 12.9% compared to 2025 December and up by 19.6% compared to June 2025. Investment securities at QAR 6.4 billion as at 30th June 2026, higher by QAR 177 million as compared to December 2025 and higher by QAR 326 million as compared to June 2025. Customer deposits stand at QAR 48 billion as at 30 June 2026 registering a growth of 3.9% compared to December 2025 and up by 9.8% compared to June 2025. The credit-to-deposit ratio as per QCB guidelines is 97.8% as at 30th June 2026, which is one of the lowest among its peer banks in Qatar, reflecting the bank's strong and stable liquidity position. The operating income, which is net of profit attributable to equity holders for the 6 months period ended 30th June 2026 was QAR 3.44 billion as compared to QAR 3.3 billion for the 6 months ended 30 June 2025. Net income from financing and investing activities stands at QAR 5.1 billion for the 6 months ended 30 June 2026. The total operating expense of the bank was QAR 566 million for the period ended 30 June 2026, representing an increase of 5.2% as compared to the first half 2025. The bank was able to maintain its cost-to-income ratio at around 16.4%, which continues to remain the lowest in the Qatari banking sector. On the asset quality front, QIB was able to manage the ratio of nonperforming financing assets to total financing assets at 1.49% and maintaining a healthy coverage ratio for nonperforming financing assets at 95.1% as at 30th June 2026. The bank continued to build total impairment provisions of QAR 362 million in the first half of 2026. The bank was also able to improve its Stage 2 coverage ratio to 9.03% against 8.5% as at 30th June 2025. These actions taken by the bank reflect the bank's strong risk management framework as well as a conservative provision policy. The bank continues to closely monitor the evolving geopolitical situation is undertaking ongoing assessments to evaluate any potential implications on its operations, if any. The capital adequacy ratio as per the new Basel guidelines is a healthy 23.3%, giving us sufficient cushion for continuous future balance sheet growth. Having taken you through the key highlights of the financials, I hand it over back to Shahan to take it to the next Q&A session. Thank you.We can go ahead and start the Q&A session, please.

[Operator Instructions] And our first question comes from the line of Jon Peace with UBS.

So my first question, please, is there any update on the key line item guidance that you've given us before around loan growth, margins, cost-income ratio, et cetera? And also, I know you normally don't guide very much on the cost of risk, but how should we think about the second half of this year? Do you still expect to see good asset quality? Or is there any need to build any sort of forward-looking provisions?

Thank you, Jon. Just by having just taking forward to what Vinay had said, right? So if you look at the numbers, I think so far, we have significantly exceeded our guidance in terms of the loan financing book growth. I think excluding acceptances, our year-to-date growth is roughly around 11%, while including acceptances is slightly higher. So in terms just to give -- I'm sure it's going to come as a follow-up question, which I would like to answer it here. So the majority of the growth that we have achieved, especially in the second half of the year and large part of the growth in the first half of the year comes from government and government-related entities. If you would look at it, our share in government business has gone almost up to 10% to 11% area. This is what has been some significant transactions that we have been able to participate in and basically take a lead in, and that has resulted in the growth in the financing book. Some of the deals are -- have been done on a syndicated basis where we are the lead syndicate and then maybe some kind of a sell-down could happen on that portfolio as we go into the second half of the year. However, on a full year basis, we expect our loan book to remain around the current levels unless and until there is any opportunities that we see that come by. But as of now, we expect to sell down some of these financing, which will be replaced by the normal organic growth that we get in terms of our regular private sector book that we have. So we expect our -- we update our loan growth from 6% range that we had given to almost 10% to 11% range. However, as I mentioned, majority of the growth has come in the government and government-related entities business, so which carry lower margins compared to the regular private sector businesses that we do. That could have a bit of an impact on our margin. We expect the margins to drop by 5 to 6 basis points given the change in the asset mix that we have seen in the first half of the year. Other than that, on the cost of risk, as I said, we don't see any major change in the asset quality. Overall absolute NPA levels have remained around the same levels at the beginning of the year. No major -- so far, as we had even told in the previous call that so far, the majority of the impact that we see because of the ongoing geopolitical scenario on the macro front is more in terms of the public sector side of it or the government side of it, where the revenues from the hydrocarbon have really kind of got impacted because of lack of exports. But on the private sector side, so far, it seems to be fairly well managed and nothing major change as we have seen. So we don't see any major impact happening on the asset quality front, and that's why the cost of risk continues to remain more driven by what is going to be the operating performance of the bank rather than the pure need in the deterioration of the asset quality. Hope that answers the query.

And our next question comes from the line of Murad Ansari with GTN.

So just following up on your loan growth comment. In previous years, I mean, we've seen government borrowing gradually getting paid back or repaid towards the end of the year. But from your commentary, it seems that this is more of a longer-term lending that has happened in this quarter. So I just wanted to confirm that and if you can.

Yes, I can confirm that these are not overdraft, but these are project-related financing, et cetera. So these -- we are not expecting any major repayments. However, as I mentioned, some of them are syndicated transaction where we may sell down to reduce our exposure. But contractually, there is no repayment conditions till the end of the year, at least.

And the acceptances amount is the difference between the 11% growth and the headline growth, that would be the -- has there been any growth in acceptances in this quarter as well?

Yes, there has been the acceptances in this quarter have increased by roughly around QAR 1.3 billion, QAR 1.4 billion equivalent. These are closely -- these are all closely linked to the long-term deposits that we are attracting from the customers. So these are 7-year deposits that get repriced annually that we have taken from customers and against which we have issued acceptances. So it's -- effectively, if you see there is a corresponding increase in the other liabilities section of the bank. So for all your calculations purposes, you can take out roughly AED 8.96 billion of acceptances, which are there at the end of second half.

At the end of the first half. All right. Just on the -- 2 more things. So margins appear to be quite strong in this quarter and the other bit is the fee income. If you could just comment on those 2?

Yes. In the sense is the margins have been decent. Sometimes the margins calculations do get impacted based on the timing of the growth, et cetera. So I would say I would request you to go with the revised guidance that I just provided where we expect the margins to really -- compared to last year, the margins will be about 4 to 5 basis points lower because of the fact that these are more government lendings, which are guaranteed by Ministry of Finance, et cetera, which carry lower yields compared to the public private sector lending that financing that we would do.

Yes. And there was no one-off in the interest income as interest expense recognition, et cetera?

There's no one-off at this point of time. It's all regular income that we continue to generate. On the fee side, the -- as we had mentioned in the previous quarter as well to say that don't look at quarter-by-quarter fees. Sometimes it do get impacted based on how the recognition of the revenues are going to happen, et cetera. Last -- especially the March of last year, March in Q1 was impacted more significantly by the ongoing geopolitical situation. We see strong recoveries at least in the areas of cards income and other retail banking income. The area that's still where we believe we are behind what we would like to be achieved is on the trade-related income. But hopefully, that should also recover as we keep going forward. So overall, I think the fee income growth compared to last year is low single digit, 3% to 4%, and we expect to remain around -- our target is 4% to 5% and by the end of the year should be around that level.

And one last question. I mean, if you can -- on the deferred loan deferrals, if you can give any ballpark idea of how big that has been for you?

It's not been very large. And again, just to say the financing deferrals, majority of them are just a delay in payments, but all these delayed payments, majority of them, you continue to accrue profits on them. So it's not that they are profit-free deferrals. It's just that the deferrals are done, giving them more time to repay, but they all attract the same profit rates that they were doing on the -- based on the original contracted period -- original contracted rates.

And our next question comes from the line of [indiscernible] with Orion Investment.

Sorry, this is Lee using Adrian's line. I just have 3 questions. The first is just to confirm that the growth in acceptances that was also linked to deposits, it is booked under the deposit line, growth in deposits as well as other liabilities. I just want to clarify that. that point? And the second point -- the second question I have is the tax rate that's being applied now for 2 quarters. Is that likely to be the tax rate that will be applied for the rest of this year as well as going forward into 2027? And the third question is any comments on dividend payout? Just these 3 questions.

Yes. So Lee, the first question is that, yes, when we accept those long-term deposits, they get booked as deposits like any normal customer deposit that we take. However, any acceptances that we are issuing against them, one leg of it sits in the financing, the other leg of sits in other liabilities. So effectively, if you want to in some countries, they are even treated as off balance sheet, in some jurisdictions, they get treated booked as other assets and other liabilities. Currently, they are being booked under financing. The acceptance leg gets booked under financing and the other leg sits in other liabilities. So if you want to do a fair calculations in terms of return on assets, return on financing or anything, you need to take it out from the other liabilities as well as from the financing. On the tax side of it, I think for 2026, yes, the tax rates continue to remain the same. What you have seen in Q1, Q2, this is the effective taxation rate that is there. In terms of 2027, I think we still are trying to look into to say that if there will be some announcement that will be made whether that will change or if there's going to be a change in the structure and the way our international operations are there. So a lot of things are ongoing on those fronts. So 2027 will give a better clarity as we go into Q3 and Q4 as we speak. In terms of the dividends, I think that overall dividend policy, there is no change. We are not expecting in the -- any major change in the annual payout ratios. It is just because of given the ongoing geopolitical scenario, the Board of Directors took a more prudent approach and then they said that they decided to, let's say, skip the interim dividend. However, there is no indication at this point of time that the annual dividend policy of the bank is going to change compared to what we have seen in the past, given the fact that we continue to have a strong capital adequacy ratios. We have seen asset growth, which are very strong, but most of the asset growth, as I explained earlier, are low RWAs because of the guarantees of the government, et cetera. So we still expect the capital adequacy to continue to remain strong and there shouldn't be any major change in the bank's ability to pay dividends from the capital adequacy ratio perspective as well. Hope that answers the question, Lee.

Actually, just a clarification. Is there -- can you give a bit more details on what's behind these acceptances? I mean they are quite large in nature. Can you give some extra color on what's behind these acceptances? They are quite large from which industry?

It's very directly related to the deposits. I'm sure you've seen the market as the general generally, the deposits are taken for 6 months and 12 months at best on the average deposit tenures, which get rolled over. However, to better protect in terms of any potential outflow challenges that could come from nonresident deposits. We try to -- we coordinated with a couple of counterparties, which are predominantly into commodity brokers, et cetera, sitting with surplus liquidities, which they could part with us for a period of 7 years. However, given the long nature of the deposits, they want additional comfort in terms of acceptances to be issued against those deposits. So these are all nonresident deposits, 7-year, very, very, let's say, kind of sticky ones. However, to give them better comfort, we issue acceptances for them given that be much longer. If you -- it's a win-win scenario of a bank, as I said, it's a 7-year funding, your kind of giving a guarantee on yourself, which is a very normal guarantee that you would give when you are doing any business of banking. Just a comfort that we give to them given the fact that they are giving us a 7-year financing a 7-year deposit to us. So we booked the 7-year acceptances as financing in our books. Sorry, let me rephrase what I said. We book at the 1-year acceptances, but we expect them to roll it over for 7 years over the life of the deposits. So these are 1-year acceptances, but we expect them to roll it over for 7 years over the life of the deposit. So these are 1-year acceptances booked as 1-year financing, but they are expected to be ruled over for the remaining 6 years of the life they would have.

[Operator Instructions] And our next question comes from the line of Rahul Rajan with Bank of America.

Yes. A few questions from my end. Could you help us understand as to what's the sector that this is pertaining to, is it more relating to the energy sector? Or at least you mentioned these are more project related. So any broad picture on what kind of projects -- these are being funded for number one. And secondly, within that is -- I mean, you also mentioned that you are the lead banker in this syndication potentially. So what is it that is different in this government lending, which was probably different forms of the other lending historically where probably QIB was not the lead. So how is this lenti different from some of the other typical government lending? That's number one. Secondly is on the deposit side of things, again, very strong deposit growth this quarter. I understand part of it is because of the acceptance associated deposits. But even other than that, it's been strong. Could you also give color on the type of deposits? How much of it is or from the energy sector and how we should see the stickiness of these deposits? That's number two. And finally is could you help us understand the sensitivity to Fed rate changes, the NIM sensitivity to federate changes? And how do you think funding and deposits will actually play out if you were to see a fed hike, say, say, a 50 basis point sort of a Fed hike?

The first question is to say that historically, when the QIB has participated in government financing, they have predominantly been overdraft kind of a short-term borrow short-term financing that we have been doing with some projects, et cetera, there. This time, the -- some of them are related to the -- some of the government-related is in real estate sector that has been booked under real estate segment. Some of them are strategic government projects into -- some of them could be energy, some of them are other government initiatives that have been taken which are predominantly longer-term funding. So these are not let's say, working capital financing for government, but these are project financing. So that's the big difference compared to the previous financing government, public sector financing book. In terms of the deposit growth, I think it's been -- it's -- we continue to -- we are the largest Islamic bank. We are one of the kind of preferred bankers. So we continue to have very strong retail book, more than 45% of our deposits are retail, having grown 5%. CASA percentages, 31% of the total deposits, up from 29% in Denver growth of almost 12%. We have seen government-related government deposits are 3% of our total deposits are government deposits showing a year-to-date growth of 6%. So overall, we see our deposits growth to continue to be well diversified. The nonresident deposits, which are predominantly as we explained, the large part of these deposits are from the longer-term ones. And what we have been doing is when we've been taking these long-term deposits, we have been repaying some of the shorter-term deposits. So if you look into the geographical distribution of the deposits, you will see that our GCC deposits are almost down 20% compared to the end of the year. The total GCC deposit share is now only 1.8%. So very limited and some of them are very well-established accounts with significant liquidity, and we don't expect any major repayments coming from there, even the corporate sector where we classify the longer-term deposits, they have also grown by 4%. So it's roughly the growth is across all segments of deposits that we have. In terms of the Fed hikes, our assessment is twofold, is that we don't expect any Fed hikes to come till the very Q4 before Q4 this year given the various political scenarios that are there within the U.S. markets. And as such, we don't see much impact of that coming flowing into this year. However, one big aspect that we need to wait and watch is to say, how does QCB follow the Fed high there are different assessment goes on at this point of time to say that in some cases, we expect QCB to match the FedEx. However, if this war and the geopolitical problems continue, maybe they not increase the rates in Qatar to avoid putting additional pressures on corporate and retail sector. So there are a lot of ifs and buts at this point of time. However, we don't expect any major impact coming this year even if the rate hike happen in September, October or something like that, there is usually a lead impact of a couple of months at least of them to flow into the P&L. So not much expected in terms of the impact for 2026. 2027, I will give a better picture as we go into the Q3 numbers, and we have more clarity in terms of whether there is a Fed hike or not and how [indiscernible] QCB expected to follow them. Hope that answers your [indiscernible]

Yes. But would it be possible to at least give us a theoretical sensitivity, just to understand what's the direction at which [indiscernible]

I think I'm a very practical guy deal with practical numbers, I've told you we don't expect any major impact for 2026. I won't get into a theoretical calculation impact. I've already given that the headline NIM impact I've already given, whereby we are expecting the NIM to drop by 4 to 5 basis points compared to last year given the change in the asset mix, given the fact that we are now taking longer-term doses, all these have a bit of an impact. But other than that, we are not expecting any major impact overall.

The question of [indiscernible] was cutoff. So we're going next to [indiscernible] investment again.

I want to ask you about the deal with Beema. Could you give us a little bit more detail about the deal? And when will it be finalized?

For us, as we were one of the founding shareholders in Beema where we used to have 2 when the Beema got listed, the founder members of loaded 25%, and it came down to 18.75%. We have decided to go and further reduce our stake from [indiscernible] to 5%, so that we are basically focusing on more of our core banking core activities, which is the banking and reduce our exposure to insurance and other sectors. So that's the primary thing. The deal has been completed. As you have seen the announcements have been made on the Qatar Exchange and to that effect. And will the deal at the stock market price? The deal has been done. There are -- the deal was because it's a bulk trade it been more known in 3-month average basis rather than on the prevailing market price.

What will be the total gain on -- for QIB?

We're still calculating the impact. You'll get -- it will reflect in the Q3 numbers. Nothing -- if you want to compare it with the overall numbers of the bank's profitability, it is not going to be significantly material. It will be there. It will be -- there will be a gain, but it's not going to be a very material gain if you want to compare it to the overall balance sheet and the peer numbers of the bank.