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

Good morning or good afternoon all, and welcome to the Qatar National Bank Earnings Call. My name is Adam, and I'll be your operator today. [Operator Instructions] And I will now hand the floor to Janany Vamadeva from Arqaam Capital to begin.

Thank you, Adam. Good morning, good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva. And on behalf of Arqaam Capital, I'm pleased to welcome you to Qatar National Bank's Q2 2026 Earnings Conference Call. I have with me here today from QNB management, Mr. Ramzi Mari, the Group Chief Financial Officer; Mr. Noor Mohammad Al-Naimi, Group Treasury and Financial Institutions; and Mr. Mark Abrahams, Group Treasury Trading. Without further ado, I'll now turn the call over to Mr. Mark Abrahams. Mark, over to you.

Thank you very much indeed, Janany Vamadeva and Arqaam Capital for your hosting of our call today. Before we begin our call, it is customary to remind everybody that this call is for investors and analysts only, and media should now disconnect, please? The beginning of 2026 was characterized by a resilient global economic backdrop driven by artificial intelligence and technology-driven investments and private sector demand. The IMF in its January 2026 update continue to project global growth at around 3.1%, with inflation expected to ease further while noting downside risks from geopolitics, trade friction and potential market corrections. Momentum has weakened since the beginning of March '26 due to the geopolitical events in the Middle East. This resulted in disruption of commodity and energy markets and heightened volatility with potential downward revision to the global growth outlook. These events also affected the overall outlook and macroeconomic landscape for GCC countries, primarily due to the suspension of trade by the Strait of Hormuz and the impact of the region's energy, transport and other industrial infrastructure. While the conflict initially affected economic activity and market sentiment, the situation remains fluid. Despite these challenges, the local economy has proven resilient and has returned to normal operation in terms of government institutions, financial markets, aviation, trade and other businesses. Once the situation stabilizes, economic activity is expected to strengthen as the resumption of hydrocarbon production and output, trade and services supports a broad-based recovery across the economy. For Qatar, the short-term impact is concentrated in the hydrocarbon sector following the disruption to LNG production and exports. 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 a ramp-up of operations of the Golden Pass terminal in Texas, United States. Non-hydrocarbon sectors are expected to recover steadily as domestic demand normalizes and business confidence improves. On the non-hydrocarbon front, the sectors most impacted include accommodation, transportation and recreation. These are expected to recover in due course. We understand that the remaining sectors, including construction, real estate, wholesale and retail and finance and insurance are less impacted. 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 the recovery. We also continue to expect not only the recovery but also the expansion of LNG production capacity, together with new export infrastructure, to support economic growth over the medium term. Against an expected GDP contraction for 2026, according to the IMF we expect a strong recovery in GDP growth in 2027, which will continue at accelerated pace 2028 and onwards as new LNG production comes online. The Qatari 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 of strength highlighting strong liquidity, capital levels significantly above regulatory requirements and strong provisioning coverage against credit risk. In summary, while the geopolitical events temporarily increased uncertainty and disrupted economic activity, Qatar has demonstrated remarkable institutional, operational and financial resilience. The banking system has continued to operate from a position of strength with no disruption to physical or digital services. Normal economic activity resumed across the country before any other impacted peer economy. The ongoing resumption of domestic demand will support a strengthening of economic growth over the coming quarters. I will now move on to QNB's financial results for the 6 months ended 30th of June 2026. Key financial results were as follows: net profit was QAR 8.7 billion or USD 2.4 billion, growth of 3% compared to last year. Robust revenue growth resulted in an increase in operating income to QAR 24.1 billion or USD 6.6 billion, up 11%, demonstrating QNB Group's success in maintaining growth across the full range of revenue sources. QNB's cost-to-income ratio remained strong at 24.1%, which is one of the best ratios among large financial institutions in the Middle East and Africa region. Total assets are at QAR 1.44 trillion or USD 395 billion, up by 6% from the same period last year. Loans and advances reached QAR 1.04 trillion or USD 286 billion, up by 8%. QNB continues to attract deposits. which increased by 4% from June 2025 to reach QAR 973 billion or USD 267 billion. This reaffirms the strong confidence of our customers and investors in addition to the quality and resilience of the QNB Group. The group's regulatory loan-to-deposit ratio remained at 99%. QNB Group's ratio of nonperforming loans to gross loans is at 2.5%, 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 remains at 99%. Total equity increased to QAR 130 billion, up by 10% from June 2025. The bank's capital adequacy ratio at 19.8% is comfortably higher than both QCB and the latest Basel III reform requirements. In relation to the QNB buyback program, the bank has completed buyback of 136.3 million shares at a cost of QAR 2.3 billion, up to June 30, 2026. The buyback execution remains in progress. We will now turn to questions and answers. Thank you very much.

[Operator Instructions] I will now hand over to Janany Vamadeva.

Thank you, Adam. Before we open the floor, I have a couple of questions, if I may. If you could give us some color on deferral request so far and whether the support package has been extended by the QCB? And my second question is around guidance, like given the H1 results and recent developments, would you have any update to the full year guidance you gave after the Q1 results? And what sort of assumption are you using in terms of end of conflict and normalization?

Thank you, Janany. This is Durraiz. In terms of update on the deferral, so total loans, that the deferral when it came, it was for 3 months, which ended at the end of 30th of June. The total loans -- the total amount of installment, which has obtained deferral is about QAR 480 million, and the total loans of which these installments are is about QAR 5.2 billion. Again, this is an extremely extreme. We have total loans exceeding QAR 1 trillion. So this is a very, very small portion of the balance sheet. Most of the loans of almost QAR 3.7 billion of these loans are in Stage 1. At QAR 1.4 billion loans are in Stage 2 already on which we already have certain provisions. The program has been extended only for corporate customers up to 30th of June -- 30th of September 2026. And of the QAR 5.2 billion, of which deferral were obtained. QAR 2.4 billion was individual customers, the remaining were corporates. So those customers, all of them are -- which Stage 1 will get off deferral in July, August and September. On the second question, in terms of guidance, at this time, we do not have any change in guidance. We stick to what we have said in Q2 of profit growth of 5% to 7% and balance sheet growth of 6% to 8%. In terms of end of the conflict, again, we don't have a crystal ball, what we expect that the recent skirmishes would rather end quickly between in less than 3 to 4 weeks.

So first question, audio question comes from Jon Peace from UBS.

Would you be able to give us any update on your guidance, please, for your local operations in Turkey and Egypt in terms of lending growth and cost of risk? And then just looking at your group numbers, the banking fees were very strong this quarter. I wondered if you could give us any thoughts on the sustainability of that run rate?

In terms of loan growth, there is no change in guidance for Turkey which stays the same, between 20% to 25% growth for full year. Again, QNB Egypt in terms of loan growth, there is no change in guidance, 25% to 27% in local currency terms for full year. In terms of cost of risk, again, the outlook for the full year we expect the cost of risk to remain at similar levels for both Egypt and Turkey that we talked about in Q2. What was the second part of your question?

It was the banking fees at group level were very strong this quarter. How sustainable do you see that?

So in terms of banking fees, I think we -- when we had investor engagement, we were telling that the only portion where we would see the nonfunded income would be under pressure to a small extent, would be our credit card fee in our consumer business. Other than that, we do not expect any major impact, and we expect it's going to be sustainable. The only area, again, I would like to highlight is the FX income, which -- a lot of it, which comes from our subsidiaries in Turkey and Egypt, they are driven by volatility in the respective markets. So if Turkey and Egypt display volatility in FX, we would expect higher income if it's lower volatility, the FX income from these markets is lower. But in terms of other noncommercial or nonfunded income, excluding FX, we expect decent stable growth.

Next question comes from Rahul Bajaj from Bank of America.

A few questions from my side. Firstly, on the macro side of things, if you can sort of help us understand as to how do you see the evolving macro conditions affecting the loan growth? What has changed since pre-conflict now? And how do you see loan growth coming going forward from here? And what could be the drivers of loan growth? That's number one. Secondly is from a deposit perspective also. So if you can help us understand as to it's been sort of flattish to down quarter-on-quarter. So how should we see deposits from here? And how do you see the overall macro environment in terms of oil prices, et cetera? Are the government financials basically impacting deposits? That's number two. And finally is on a capital perspective, we see that the bank has not announced interim dividends. Is it that -- sort of how should we see dividends from an annual basis, number one? And number two is on buybacks, any guidance on when do you see the current buyback program completing? And any color on a new buyback program, please?

Thank you, Rahul. We have a lot of things to cover. So in terms of macro outlook, we expect GDP contraction this year. IMF talks about close to 8% GDP contraction in real terms followed by a very strong recovery next year. The loan growth guidance that we gave at the start of the year was 7% to 9%. In Q1, we had trimmed the guidance to 6% to 8%. And at this time, on a year-to-date basis, we are up 2%. We are slightly slower in loan growth. However, what we think is that one situation stabilizes, there are a lot of transactions in pipeline, and those will kick off once the situation stabilizes in terms of geopolitical events. In terms of deposits, yes, we are flattish or slightly negative in terms of quarter-on-quarter. But what we -- what you would also note is that we are using this to try to increase our long-term funding, particularly other borrowings has more than offset the small decrease that is coming in deposit on a quarter-to-quarter basis. We are using this opportunity, particularly for deposits, which are coming in from our foreign operations, which were short term trying to actually increase the duration of that directly in the other borrowings by directly contracting by our counterparties and taking longer-term money. In terms of macroeconomic outlook, surprisingly, the local deposit, and people would expect that because of government revenue, the local deposits would have been impacted. It's not the case. On a local franchise perspective, actually, our deposits are up 10% on a year-to-date basis. primarily because of resident depositors. As you are aware, in normal circumstances, Qatar government entities, Qatar government and all its subsidiaries and entities are net providers of capital to the world. And currently, they have -- some of those deposits have come into the country to help their own operations, which is helping our operations as well. In terms of interim dividends, interim dividend was not announced, but there is no change in payout policy or payout ratio. This year, we are going back to the annual dividend. In terms of buyback, we are progressing on the buyback, and we expect it would finish sometime in Q3, Q4 as we go closer to finish we will approach to the -- we'll request the Board for a new program, and we'll take it from there. But at this time, execution is in progress. So I think -- I hope I've covered all your answers.

Yes, absolutely. Just one follow-up, please. You mentioned the change in the deposits more towards longer-term funding. So how should we see the impact of this on your NIMs? I understand, please correct me if I'm wrong, you guided for around 2.6% to 2.65% NIMs for the full year. So how should we see the impact of this on NIMs, please?

In terms of NIM, we -- it is going to be marginally negative, but it's going to be a smaller impact. So we stick to our guidance between 260 to 265 basis points. Probably at the lower end of the guidance, we might end up, but we'll stick to the guidance.

Next question comes from Chiro Ghosh from SICO Bahrain.

This is Chiro Ghosh from SICO Bahrain. I have a few questions. First one is if you can give us some more clarity on why the Turkish business -- why did you witness such a strong NIM contraction in Turkish business? If you can give us some clarity on that one. Second, is other provisioning, we saw that there was a sharp if you can please explain it again, why the other provisioning shot up in this quarter? And third one, just quickly, if you kind of can remind that, why is the share of Qatari loans have reduced? If you can explain that?

Chiro, I've got 3 questions. In terms of Turkish business, the first one is why has the NIM contracted this quarter? Generally speaking, when interest rate reduces, there -- because the liabilities are extremely short dated, we get a NIM jump. And then assets reprice later in which basically NIM then contracts to counteract that NIM jump, which initially happened. What we are seeing in the Turkish business, particularly in Q2 strongly, is the impact of rate cuts which happened towards the end of last year. Other provisions is a provision taken on certain customers, which have what we call loan guarantees and letters of credit. We give full details in our annual financials, but this is for certain customers, which were classified as nonperforming, which also have guarantees and letters of credit for which we have to take provision against it. Contribution of Qatari loans. In the franchise itself, there is no major change in terms of Qatari loans. Sometimes from a residential classification is simply because maybe the loan is taken by an SPV, which is located out of Qatar. But from a franchise risk perspective, there is no change in loan composition.

Just one quickly, one small thing on the -- one follow-up. So in the past, management has said that in a strong quarter, there might be additional provision that might be taken. So is that still continuing? Or is our core provision requirement?

It's actually break down our provision in Stage 1 and Stage 2 and 3 this quarter, still we have taken 17 basis points, provision on Stage 1 and 2 loans this quarter, which is in some cases, higher than what other banks take in for the full thing to know. We continue to be prudent in provision management. Our net operating income, pre-provision is up 11%. Post-provision profits are up 3%. So yes, our prudent guidance continues to -- we are not leaving that behind.

The next question comes from Naresh Bilandani from Jefferies.

It's Naresh Bilandani from Jefferies. Just 2 quick questions, please. One, Durraiz, if I see the Qatari segment NII, that has actually come through quite strong in this quarter. I think you recorded $5.2 billion NII, which is the -- probably the highest that we have seen. Could you please explain the drivers of this trend? That's the first question. And second is, I'm just looking at your trend of impairments. And clearly, I think what you've taken in the first half of this year kind of indicates more of a business-as-usual scenario rather than an economic stress resulting from the conflict? How should we expect the trajectory to pan out over the next couple of quarters? I assume the second half is likely to be a lot -- probably higher as compared to what we have seen and probably follows a pattern that we've seen in the previous year. But any indications if the pace of impairments kind of follows the strong GDP recovery expectation that you are setting in for 2027? So impairment charge outlook for 2027 looks somewhat moderated to you at this stage? Or should we still maintain a conservative outlook in the impairment charges as we go forward from here? So just 2 questions. Once again, first is the strength in the Qatari NII. And the second is how should we think of the trajectory on the impairment charges? Because I think -- I don't think that the first half is fairly or intuitively reflective of the stress that we've seen at the macro level.