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Edited Transcript of CBQK.QA earnings conference call or presentation 22-Apr-20 11:00am GMT

Q1 2020 Commercial Bank PSQC Earnings Call

Apr 28, 2020 (Thomson StreetEvents) -- Edited Transcript of Commercial Bank PSQC earnings conference call or presentation Wednesday, April 22, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph Abraham

The Commercial Bank (P.S.Q.C.) - Group CEO

* Rehan Khan

The Commercial Bank (P.S.Q.C.) - EGM & CFO

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Conference Call Participants

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* Aybek Islamov

HSBC, Research Division - Analyst

* Bijoy Joy;QIC Asset Management;Analyst

* Chiradeep Ghosh

Securities & Investment Company BSC, Research Division - Research Manager & Senior Analyst

* Vikram Viswanathan;NBK Capital; Director, Head of Buy-Side Research

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Presentation

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Operator [1]

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Good day, and welcome to the Commercial Bank Q1 2020 Investor Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joseph Abraham. Please go ahead.

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [2]

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Thank you. Good afternoon, everyone, and thank you for joining us today. Firstly, I do hope all of you and your families are safe and well, and my best wishes for coming out safe and healthy when this situation eventually ends, and we hope that is sooner rather than later.

Now turning to our results. As you can see, we -- for the first quarter of 2020, we've achieved profit of QAR 402 million as against QAR 440 million for the same time last year, a reduction of 8.5%. Now I would say that this is actually quite a solid performance, which has been impacted by 2 factors. The first factor, of course, is, as you know, there's been unprecedented volatility in the international markets, and there have been some impacts flowing through on a mark-to-mark basis for our bond book. Now that is an uncrystallized impact, which we have already seen quite a significant portion of it coming back in the first 3 weeks of April, and we remain confident that, over time, as the market stabilize, we'll see that coming back.

The second factor is the performance of associates, and Rehan will speak to that in greater detail. We are limited to what we can say because both our associates are listed entities, and we have used management accounts to produce the current results. So they're subject to that change.

Now I'm sure all of you are wondering about the effects of the COVID-19 situation on Commercial Bank and in the wider macroeconomic environment. Firstly, I would say that the government of Qatar and the Qatar Central Bank have been very proactive in supporting the affected sectors. So we have seen the National Response Guarantee Program initiated by the Ministry of Finance and the Qatar Development Bank to support affected sectors with salary and rental payment loans, which will be interest-free for the first -- or will be borne by the Qatar Development Bank for the first 6 months. And similarly -- and we've seen quite a good uptake on that program. And similarly, there's also been interest and principal deferment for 6 months for affected sectors and also the ability for banks to provide concessional interest rates for affected sectors at 1.5% against a 0% repo window from the Central Bank. So there are many supporting measures taken to help the affected sectors.

Secondly, of course, the Qatar government continues to spend on the necessary infrastructure for 2022, and it's supported by its own strong fiscal and other buffers and it's good credit rating, as we've seen by the recent bond issuance. So overall, I'd say that the macro support factors have been well announced and implemented, and that provides some comfort at the overall level.

With regard to ourselves, Commercial Bank, I would say that we have had a solid performance. And you can see that if you look at the overall net interest income and factors like the net interest margin has improved. And even the cost of risk, whilst it contains some factors that we've added for the COVID-19 at a macro level, it still remains within acceptable parameters.

Now I would say that we are well positioned for this situation for a number of reasons, and primarily, this is due to the 5-year strategy that we implemented -- started to implement 3 years -- 3.5 years ago, and which we are still implementing. If you look at it from a risk perspective, we tightened our underwriting standards right across our book, whether it's in personal loans, whether it's in SME, whether it's in corporate, including reducing our exposure to real estate and other sectors and contracting. And you'll see real estate has come down to 21% of our book whereas it used to be as high as almost 30% when we started this journey. And similarly, we tightened our SME and our other underwriting standards. And all this has led to me to believe that the impact of COVID-19 will be within acceptable parameters for our risk book given the quality of our current loan book and the subsequent origination. It will be foolish for me to say that there'll be no impact, but I believe that the impact will be within acceptable margins. And that's a result of the strategy that we implemented on the risk side, which is at the end of it, the underpinning of banking.

The second piece where I think we've been -- again, our strategy has benefited us is that we said that we are going to be very strong in technology and digital leadership, and we have launched a number of products whether it's contactless cards, whether it's our 60 seconds remittance proposition and our recent mobile wallet. And it's our ability to launch and use technology, which we have now brought in-house. It used to be outsourced, it's brought in-house, which is actually a great advantage for us because I do -- and has enabled us to respond to the crisis. As an example, there was a need for remittance product for domestic workers, which we were able to launch within 10 days. So I'm just saying that's an example of our -- the nimbleness that we have around technology and our ability. And we have -- many of our processes are now automated on an interim basis. So I believe that the corona crisis will lead to fundamental change in consumer behavior, especially as far as banking is concerned, because that's very amenable to digital banking and self-service, and we are well positioned to take advantage of that.

As an example, our remittance volume showed a spike of over 30%, and we're able to handle that seamlessly because of the technology that was deployed at the customer end where experience is very easy and in our operations where the process is end to end and automated. So that's an example of where -- how we're going to benefit in the -- currently and in the future as customer behavior changes.

I would say that, overall, we continue to -- our cost/income ratio continues to go down, and that to me is a result of all the technology and other factors that we are implementing, and we'll continue to focus on that area. So overall, I would say that the bank remains well positioned in this difficult and challenging time. And our continued implementation and strong execution of our strategy will enable us to continue to progress and perform despite the current challenges because we have an enhanced resilience, and we probably will come out at the other end in a stronger shape because of the capabilities that we have in place and the execution that we've done over the last 3.5 years.

So we take some questions at the end of it, but I'll hand over to Rehan right now, who will talk you through our financials in more detail, and we're happy to take questions after that. Rehan?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [3]

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Yes. Thank you, Joseph, and good afternoon, everyone. I'll go through an overview of the results. And as Joseph said, then we can move to the Q&A session.

If you look at Slide 5, this shows the quarterly analysis. And for both the fourth quarter of last year and the first quarter of this year, we have included normalized numbers on the far right of this slide. In this quarter, we've stripped out the impact of IFRS 2, which results from the movement in the share price for the staff performance scheme that we discussed in the last quarter. This is QAR 95 million, and so we've added that back both to income and to expenses in the far right column. All other numbers are the same as in the reported column.

So on that basis, when we look at total operating income, this has improved by 11% year-on-year. Within this, NII has grown by 39%, and our NIMs have improved from 2% to 2.5%. Although asset yields have reduced, the increase in margins is mainly due to proactive management of the cost of funding, both in Qatar as well as in Turkey. There are no one-offs, and we have seen a full quarter benefit of the Tier 2 maturity that took place in middle of November last year, healthy levels of low-cost deposits and the overall focus of bringing down the cost of funds. At the same time, nonfunded income has decreased by 69% year-on-year on a reported basis. And when adjusted on a normalized basis, it's still down by 39%. As mentioned earlier, this is primarily due to the adverse unrealized mark-to-market movement of about QAR 200 million, both in our investment book and in our trading book as a result of the volatility in the global markets. This was primarily in March. And as Joseph said, we've begun to see a reversal and a recovery of that in the first 3 weeks of April.

Cost, you can see on a normalized basis, are fairly consistent with previous quarters. And our cost/income ratio, although on a reported basis, it's 19.5%; on a normalized basis, this is 27.1% and shows the downward trend that we've got quarter-on-quarter. The provision -- net provisions have decreased year-on-year.

We have included additional ECL by updating our models based on the most updated current macroeconomic data that was available. Due to the current situation, you can see that there have been delays in realizing our planned bad debt recoveries, but we still expect to complete the majority of these in the current financial year.

NPL ratio is down from 5.6% last year to 5% this year, and the cost of risk is 83 basis points on a net basis.

Total capital adequacy now stands at 16.6%, and CET1 is at 11.1%, which is broadly in line with our year-end numbers.

I think from a balance sheet perspective, we've seen loans increase by 3.2% as compared to March of last year. We've grown our share of government and public sector. We have continued with the derisking and also reduced our real estate in return contracting exposure. During the quarter, loans have increased by 0.9%, and this is in line with our expectations. Deposits were down 5.7% compared to last year but up 1.5% compared to the year-end. Importantly, low-cost deposits continue to grow. And as you've seen, this is one of our focus areas. We've been very active in the transaction banking through our payments and cash management as well as our leading remittance products, and this has resulted in higher average low-cost balances.

Moving on to our subsidiary. Alternatif Bank has delivered a year-to-date net profit of TRY 40 million compared to TRY 32.5 million at this time last year. So that's an improvement of 24%, and the bank is showing positive growth compared to Q4 of last year. The impact in our reporting currency is 12% increase year-on-year due to depreciation in Turkish lira.

Now let's turn to our associates. As you're aware, the countries in which they operate have deferred the Q1 reporting, and hence, the numbers we've included for our associates are based on their management accounts. In addition, we have taken a management overlay, and that is to ensure that we are prudent considering the current situation as they still need to finalize their Q1 numbers, which will then be reviewed by the auditors. As these entities are listed, we have not separately disclosed the individual entity numbers, but I've shown these in aggregate. And out of respect, we will wait further for the Q1 numbers to be finalized, and I think this is an area we can talk about more in our Q2 numbers once these are all published.

Let me hand you back to -- for the Q&A session, and we're happy to take any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Vikram Vis from NBK Capital.

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Vikram Viswanathan;NBK Capital; Director, Head of Buy-Side Research, [2]

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Just going back to the guidance that you gave during the Investor Day. Is it fair to assume that given the exceptional circumstances, the guidance stands suspended for now?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [3]

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I would say, Vikram, that like I said, I believe the guidance will more or less remain where we want it to be, where we said it was. So I think on the sort of cost of, let's say, the net interest margin, we will try very much to keep it where we're still targeting for that. I would say on the -- probably the loan growth, we did -- we said 4% to 6%. I think it will still be somewhere in that range, maybe more towards the lower end of it, whereas earlier we might have been at the higher end of it.

In terms of the cost of risk, I think we guided at 60 basis points. I think that's the one area that perhaps we might be a little outside of that parameter. We are still going to try for it, but given COVID-19 and who knows what can happen on that, we -- I think, conservatively, we'd say that's probably the area that I might say we might not be able to quite achieve that level of 60 basis points. But whether it's at the current quarter's level of 83, I would hope it will be better than that. Because of the COVID crisis, a lot of the costs and other recoveries that we're aiming for have not flown through or flowed through, but we expect them to come through still later on in the year. So -- but if that gets delayed, that might have some effect.

So I would say that overall, we don't see a huge change in the guidance. Except perhaps in the cost of risk, given that some of these factors are not in our control. So that would be where we'd keep it at right now.

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Vikram Viswanathan;NBK Capital; Director, Head of Buy-Side Research, [4]

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Sure. Sure. Sure. Another question on the associates. We've seen some of the UAE banks delay their numbers given that the regulator has given direction to delay their numbers. But we are under the impression that most of the banks are reporting numbers in Oman. You've seen numbers coming from Bank Muscat and other competitors, but we do not see numbers coming from National Bank of Oman. That's the only bank which has not reported so far. So are they going to report, are they not going to report the Q1 numbers, that does not relate to -- is it the only bank in Oman which is not going to be reporting?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [5]

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So let me take that. Vikram, actually, NBO were required to change their auditors in 2020 as they had reached the maximum number with EY at the end of last year. AGM could not take place last month as scheduled and therefore, there was a delay in appointing the new auditors. They have now been given special permission to appoint those auditors, so now that work is going on to get the accounts reviewed, and then they will publish the account. So there's a slight delay because of that issue on the AGM, but we expect in the next -- certainly in -- before the end of next month, those numbers will be published probably around mid-May, I would expect.

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Vikram Viswanathan;NBK Capital; Director, Head of Buy-Side Research, [6]

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Excellent. A question on the fees and commission. We noticed that there was a decline in fees and commission relative to the normal run rate, which is somehow linked to the one-off cost gain that you took. There was a mark-to-market impact on the cost. Is that also impacting the fee income in some way?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [7]

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That's correct. That's correct. And so when we normalize that, it's about QAR 95 million that gets added back. That's the volatility that we're seeing both in fee income and in the staff expenses based on the share price movements, but that is the main reason.

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Vikram Viswanathan;NBK Capital; Director, Head of Buy-Side Research, [8]

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Sure. A question on United Arab Bank. As we know, you booked impairments on this item last year. Given the situation and given that it's a small bank in the UAE, do you think you would have to accelerate some more impairments this year?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [9]

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Yes. Look, I think certainly, there will be impairments during 2020 as well. That's something that we will work out once the full impact of COVID-19 is assessed. But yes, I think it's fair to say that there will be some further impairments that we will take during this year.

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Operator [10]

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We now take our next question from Aybek Islamov from HSBC.

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Aybek Islamov, HSBC, Research Division - Analyst [11]

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Yes. So a couple of questions from me, please. I was wondering how your asset yield will hold up in 2020, in particular, understanding the yield on Qatar government debt securities. Obviously, these are very good yield. Looking at 2019 earnings, 4.6% there. Are these fixed rate? Or are you expecting them to sort of come down in 2020?

Secondly, how do you think your loan book will hold up in 2020? If you think about repayments versus new originations, what do you think will happen with your loan portfolio?

And my third question is on your provision charges on loans in the first quarter. How much of it is due to this preemptive provision for COVID-19 and how much is the normal run rate which you can comment on this in Qatar and in Turkey, if possible?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [12]

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Yes. Look, firstly, in terms of asset yield and NIM, generally, the guidance we gave for NIMs this year was 2.4%. And the Q1 number shows 2.5%, so we've done slightly better in Q1. We do expect asset yields to come down. The cost of funding is also coming down. That's why at this stage, we would say that 2.4% is still achievable, and that's what we are striving for, so that guidance remains in place.

In terms of your second question on loans, we believe that this will still be government and public sector-led loan growth. As we said, we've given a guidance of 4% to 6%. Maybe it will be at the lower end of that guidance, but we believe that will still happen. Private sector is more likely to emerge in the second half of this year, but we think that the government sector will still lead the growth in the lending book.

The third question I think you had was regarding provisioning. So actually, the underlying provisioning has been decreasing, both here and in Turkey. And that's really the result of the very large provisioning that we've taken in previous years. COVID-19 modeling has been updated, as we said earlier, for the macroeconomic factors, and that has been included in the provision number. And -- but what we expect to happen is with more data for that modeling to be updated again in Q2 of this year and a fuller assessment done then.

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [13]

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I think if I may just add on the quality of the loan book and how it will stand up. I think as we -- as I said earlier, the measures we've taken to proactively derisk from our portfolio, de-emphasize real estate, tighten our underwriting standards right across the board, all this has led to, I would say, one is identifying a lot of the problematic accounts and taking proactive action. And two is the quality of our subsequent origination over the last 3 years has been, I would say, good for the resilience and ability to handle the COVID is better.

And I would just say that I think as an example of that, I mean we all know there's a very significant exposure, which is currently impacting many banks in the UAE. We had a significant exposure to that name in our books, which we exited in 2018, June. I'm just giving that as an example of the risk culture that has been now embedded in the bank. And I'm not saying that we'll never get it wrong. Of course, as we're in banking, we will get risk right and wrong. But that's an example of the sort of risk approach that we're taking to make sure that the quality of our book improves and is improving over time.

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Aybek Islamov, HSBC, Research Division - Analyst [14]

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Okay. And where do you expect more pressure on your cost of risk in 2020? Do you think it's going to be Qatar? Or do you think it's going to be Turkey?

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [15]

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Look, I think even Turkey, as you see last year, we took some significant provisions, which are also mandated from the government side. So I personally think the overall -- I don't see any particular area. I mean Turkey, I think more impact will come from the currency depreciation in their book and some of those impacts, but a lot of the risks have been recognized at the end of last year. Some more will come through. But I think in terms of the overall size of the risk, I think we should be more or less on target. I don't see too much too many, as I said earlier, too many large variations in our book coming through either in Qatar or in Turkey. And maybe I'm being a bit optimistic there, but this -- I expect the quality and the work that we've done already to actually stand us in good stead even in this situation.

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Operator [16]

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We now move on to a question from Chiro Ghosh from SICO.

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Chiradeep Ghosh, Securities & Investment Company BSC, Research Division - Research Manager & Senior Analyst [17]

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This is Chiro from Bahrain. I have 2 questions. My first one is regarding the loan development. What's the loan development you're offering in Qatar? And what are the loan development policy you're offering in Turkey? That's one.

And second thing, it's more of an understanding. So let's assume if you have restructured a loan and the usual convention is to take it back to a performing loan after it complies with the payment schedule for 1 year. Now if the person is -- the company is not paying for the 3 months or 6 months, what exactly -- how does the restructuring policy changes? These are my questions.

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [18]

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I think in terms of the overall process in Qatar, it's 6 months deferment of principal and interest is being permitted. And there's also discussions on that. This should not automatically lead to downgrade of the account or anything like that because of the deferment, and so that's the approach. So if they're -- after the deferment, it will get added to the principal and either as an increase in the bullet payment or to their current installment. So as long as they're meeting those, they will not necessarily be downgraded at all.

If they default in the meeting their payments, of course, then that will lead to a downgrade. But we don't see the deferment per se creating new movements or new downgrades that -- have I understood you correctly on that?

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Chiradeep Ghosh, Securities & Investment Company BSC, Research Division - Research Manager & Senior Analyst [19]

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Yes, yes. I just wanted to know, say if some loan is nonperforming or it's in a restructured stage, how does the whole schedule work? But I kind of got an understanding of that.

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [20]

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Yes. And just to add on what Joseph said, actually, there's a very specific requirement from the Central Bank which the auditors have agreed with, that any deferment should not change the category of the customer. So under these exceptional circumstances, this is the policy that is being adopted by all banks.

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Chiradeep Ghosh, Securities & Investment Company BSC, Research Division - Research Manager & Senior Analyst [21]

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And what is the deferment policy which you're following in Turkey and in Qatar?

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [22]

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I think I'll need to get the details on that. I don't have the exact -- in Qatar, it's 6 months for principal and interest. In Turkey, I'll have to get back to you there.

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Chiradeep Ghosh, Securities & Investment Company BSC, Research Division - Research Manager & Senior Analyst [23]

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(inaudible) accrued interest. You will see affecting tax results (inaudible) 6 months?

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [24]

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Correct, correct. So that will continue to be accrued, and they will have to pay that over time. It will be -- it will either be added to the bullet or be added to the amortization schedule.

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [25]

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In Turkey, one thing that -- in Turkey, one thing the regulator has said is that a loan will become nonperforming after 180 days rather than 90 days. But in our consolidated results, we have kept with the policy of 90 days to be consistent across the group. So we've not adopted that. We've asked Turkey and they have submitted their numbers based on 90 days rather than 180 days, which they will employ for their local [delay].

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Chiradeep Ghosh, Securities & Investment Company BSC, Research Division - Research Manager & Senior Analyst [26]

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So Turkey might be a lot more conservative than -- their bank would be a lot conservative than its peers, right, that is? I see some pickup in nonperforming loans.

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [27]

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For the numbers submitted to us, yes.

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Operator [28]

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We now move on to further questions from [Varuna Kumarade] from [SICO Bank].

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Unidentified Analyst, [29]

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I have a few questions. The first one is regarding the fee and commission income. Once the date adjustment is made, I think there's no material decline year-over-year in terms of fee and commission income compared to last year. So do you expect this to continue? I mean how -- because we haven't seen the full impact of COVID-19 in the first quarter. So do you expect this sequential decline in the next quarter and quarter after?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [30]

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Yes.

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [31]

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Rehan, you want to take that?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [32]

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Yes. Yes, I'll take that. Yes. Look, I think, obviously, the impact of COVID-19 is not high for the first quarter. I think the areas where fees and commission will be affected is, for example, on the international card spend, which will clearly decline for ourselves in terms of income and also depends on how long the current status remains. But I think those are the kind of areas where we may see some decline in income. .

Having said that, I think areas like FX are very strong in terms of remittances. And the areas we've (inaudible) ever, which is like transaction banking, they remain very strong. So there will be some compensating areas, but I think, overall, yes, we're still to see the overall impact of COVID-19 in our fees and commission. But I think there will be some areas where we will see lower than in previous year.

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [33]

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So we would try, as Rehan has said correctly, I think credit cards and international spend will be the area which is mostly impacted and for obvious reasons, so until that happens. So I think that's what we will be keeping and watch out for.

International remittances, as one of the measures to help out people during the COVID-19 crisis, there has been a waiver of the fee that we charge in international remittances. So obviously, that will be impacting a little bit, but at the same time, our volumes are going up. So we might make that up on the foreign exchange and currency conversion side. So overall, I'd say that swings around about on that one, but the credit cards, which is the main area. But we continue to win new mandates for cash management, et cetera, which should help bolster some of that revenue.

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Unidentified Analyst, [34]

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Okay. That's clear. And secondly, I want to move on to this forbearance of loans, the deferment of installment. You mentioned that it is allowed up to 6 months deferment for affected sectors. But it depends on the request that you're getting, right? It's not like you automatically deploy everything. So how is the take-up up until now? Can you give some kind of sense?

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [35]

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So we proactively deferred it for our SME portfolio, for the entire SME -- I mean enterprise portfolio. So that was a measure that we took. But on the live -- but that's a relatively small part of our overall loan book.

For the major part of our loan book, we are doing it on request, and we have received a few requests. But I would say that we have received less requests than I was expecting because I thought many people will take it on here. But maybe that will come through later on as people find their cash flows maybe affected, et cetera. But right as of now, it's less than I was originally expecting. I'd say right now maybe 10% to 15% of our portfolio has requested it, 10% after.

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Unidentified Analyst, [36]

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10% to 15%?

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [37]

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Yes.

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Unidentified Analyst, [38]

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Yes. And in terms of impact on -- I know that this is -- this cash flow is right. As long as it gets paid, it doesn't really matter in terms of -- unless it's -- I mean only thing that happens is it will get pushed back. But in terms of income recognition, do you -- is there an impact from the net interest income the way you are recognizing, accruing it in the P&L?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [39]

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So in theory, no, because it is purely a deferment. However, we are going to be conservative on income recognition, so we will look at that very carefully in this quarter and next quarter in terms of how much take-up there is and how much is actually deferred and then what that means in terms of the loan in terms of bullet payment, et cetera. So that's still something being worked out. And that's partly why we said that the net interest margin is like 2.4% for the year rather than 2.5% that we achieved in Q1.

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Unidentified Analyst, [40]

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Okay. Okay. And -- but is there a -- but isn't there a uniform agreement, sort of kind of an agreement which means that at least in the Qatari banking sector regarding this recognition? Because I got the feeling from the Qatar National Bank when they -- during the conference call, they mentioned that they are not recognized, they are not accruing the interest income. So is there inconsistent -- I mean is it up to the bank to decide how to recognizing the income on this?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [41]

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No. What we will do actually is we will work with the Big 4 audit firms, working on them to have a consistent view for the banks, and that is the one we will adopt overall. But that is not finalized.

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Unidentified Analyst, [42]

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Okay. Okay. Got it. And if I may move on to the associate income, as you mentioned, this is based on management accounts of companies which are not reported. But I want to just -- I mean can you give a guidance? Is it fair to assume that this is mostly coming from UAB, the loss?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [43]

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Yes. I think that's correct for you to assume. And as Joseph alluded, there is one exposure which is in the market, and UAB does have exposure to that customer as well. And therefore, that's why we've partly done that management overlay to the overall numbers.

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Unidentified Analyst, [44]

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Got it. Okay. And lastly on -- I think some -- another participant asked the same question, but can you quantify the COVID-19 overlay that you applied on the provisions? Is it quantifiable? What percentage of it is COVID-19-related?

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [45]

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Yes. I can tell that. That is QAR 30 million for Q1 that we've taken based on updated macroeconomic factors.

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Operator [46]

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(Operator Instructions) We now move on to a question from [Mohamed Adel from Allison Investments].

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Unidentified Analyst, [47]

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My question -- I have more questions on this but this has already been answered. My question is on the deferment of the loan. Now I've heard on an earnings call that the government initiative is only for -- even for 3 months. And now other banks at 6 months and the other affected sectors. So can you just like clear this up for me?

Also another thing is on...

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [48]

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So you want that settled?

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Unidentified Analyst, [49]

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Okay, first, yes, yes. So just the -- just in the treatment of -- I mean sorry, I mean the government initiative.

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [50]

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Let me take that one. I think there may be some -- just to clarify, one government initiative was to provide loans to companies for the payment of their workers and rental payments in case because many places have been closed down, whether it's a restaurant, et cetera, but you still have workers, you still have rental payment. So to support them on this, for a period of 3 months of salary or rental, the Qatar Development Bank is providing a loan scheme to provide for 3 months of your salaries or rental costs to these affected companies. So that's one scheme.

The second scheme which is promulgated through the Central Bank, et cetera, is that banks can give a deferment of loan and interest for a period of up to 6 months. So that's the second scheme. So that applies to any company, not just for payment of salaries or rentals, which is restricted to 3 months and is a separate loan scheme. So that is for giving fresh loans to companies who have been affected by this. The other -- and that's only for 3 months of wages or rent growth costs.

The other deferment for 6 months applies to existing loans to existing companies. So that's the difference between the 2.

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Unidentified Analyst, [51]

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Okay. And another question, you said that the deferment is around -- the period that's loan to the deferment from the portfolio around 10%. Does it include the asset fee that you already proactively distribute? Or this is just the other companies that ask for deferment?

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [52]

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It includes everyone that we are looking at for deferment as of now.

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Operator [53]

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We now move on to question from Bijoy Joy from QIC.

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Bijoy Joy;QIC Asset Management;Analyst, [54]

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I have 2 questions. The first one is on the net interest income. What I want to understand is you have done a lot of savings on your cost of deposit. But going forward, how do you plan to maintain the NIM? Is it through focusing on better margin loans or -- and a mix of both? Or is it the majority of it is going to come from interest -- from reduction in cost of deposits?

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [55]

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I think the -- as Rehan has said earlier, the primary focus now is on the cost of fund. And this is going to be a combination of, as we said earlier, we had an expensive Tier 2 issuance last year, the benefits which only matured at the end of last year, so the full year benefit of that will come through.

Second is we also had some other issuances in the Tier 1 space, which are being repriced down. So that's also going to benefit us this year. And we're going to continue to reprice our whole liability book right across all our customer deposits. So very -- we have a weekly meeting where we look at everything and make sure that we are repricing. So we have some strong discipline around that. So that's going to be the primary focus.

Loan prices are, obviously, with the drop in interest rates, are going to drop. We manage that on a case-by-case basis to see how we lag it perhaps a little bit or manage it so that the effects flow through on a more deferred or delayed basis. But fundamentally, I don't think we have much scope. We're not chasing high-yielding loans because that might push you down the long end of the risk curve, which is not what we want to do. So it's definitely not high -- chasing high-yielding loan at the cost of this. So frankly, that won't be the emphasis. It's much more on the cost of our funding base and how we manage it proactively.

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Bijoy Joy;QIC Asset Management;Analyst, [56]

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Understood. My second question is on the fee income. So I saw that for the Turkish bank, it has come down from TRY 65 million last year to TRY 40 million also. So what exactly is happening? I can understand part of it would be because of the depreciation. But what -- if you can provide some color on that.

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [57]

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I mean I think last year, that was quite significant because of the way the currency was moving, a lot of -- I think there was a lot of opportunities in the hedging space from both interest rate and currency. And so I think that was contributing to quite significant treasury fee income. That has obviously come down a bit this year as a lot of people have already done what they needed to do. So that's probably the main reason why you have that difference.

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Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [58]

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Yes, that's correct. A lot of that was trading income-related, which was the opportunities in the market at that time.

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Operator [59]

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(Operator Instructions) There appears to be no further questions at this time.

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Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [60]

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Okay. Well, if there are no further questions, I will let you all get back to what you're doing and write up your reports.

I think we have one question we had to come back to, which is about the loan deferment and interest deferment in Turkey. So Rehan will come back to the concerned analyst on that point.

So once again, thank you very much for joining us today, and please keep safe and healthy. And we look forward to talking to all of you again at the end of Q2. Thank you very much.

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Operator [61]

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Thank you. This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.