U.S. Markets closed

Edited Transcript of CBQK.QA earnings conference call or presentation 30-Jan-20 8:00am GMT

Q4 2019 Commercial Bank PSQC Earnings Call

Feb 3, 2020 (Thomson StreetEvents) -- Edited Transcript of Commercial Bank PSQC earnings conference call or presentation Thursday, January 30, 2020 at 8:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Joseph Abraham

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

* Rehan Khan

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

================================================================================

Conference Call Participants

================================================================================

* Aybek Islamov

HSBC, Research Division - Analyst

* Chiradeep Ghosh

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

* Ribal Hachem

Arqaam Capital Research Offshore S.A.L. - Analyst

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day and welcome to the Commercial Bank 2019 Investor Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Joseph Abraham, Group CEO. Please go ahead, sir.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you. Good morning, everyone, and thank you for joining us today for our investor conference call, which will discuss our 2019 results.

Firstly, I'd say that we are pleased with our results. Our net profit of QAR 2,012 million, which is QAR 2.012 -- sorry, QAR 2.021 billion is the highest profit that the bank has made in its history. The previous time that we came anywhere close to this was when we made QAR 2,012 million, which was in 2012, when the environment was slightly different: oil prices well over $100, there was no blockade on the country, real estate was booming. So in a very different environment, we have actually managed to deliver a strong profit.

If you go beyond the figures, and I think this is the more pleasing aspect, it shows the strong execution and the results of our 5-year strategy. We've just completed year 3 of the 5-year strategy, and you can see that the results are now coming to reflect the outcomes of all the actions that we have taken. So I'd say, first of all, in terms of our 5-year strategy, one of our first focus areas was on cleaning up our legacy loan book. So as you can see, our NPL ratio, after peaking at 5.6%, has now come down to 4.9% this year. Similarly, our cost of risk has moved down from 107 basis points to 68 basis points. So -- and both are trending lower. So that's a major part of our strategy, which has gone forward well.

The second was we said we were going to de-risk our book and also reduce our overexposure to the real estate sector and increase our government and public sector, so it rebalances our loan book. So if you look at the sectoral composition, our real estate exposure has come down from 26% last year to 19 -- to 21% this year, and our government and public sector has moved up from 9% to 17%. So again, we're moving in the right direction. We still have ways to go because we'd like our real estate exposure to probably head down to the economy-level sectoral composition of 16% and the government and public sector to cross 20%. So -- but we're seeing all the success we're having in this regard, and we expect it to continue.

The second area was around our costs. 3 years ago, our cost/income ratio was 45%, and we were well above the market, which at that time was 30%. We said we're going to get to 30%. I'm glad to say that we are now at 28.7%, and last year, we were at 33.4%. So we have now got a cost/income ratio much more closer to market. Of course, the market has moved too in this period and is now around 25%. So our next goal is to get to that level. But again, all the signs are that we're continuing to manage this quite well. And this is actually -- cost and income ratio has been achieved despite actually investing a significant amount in new technology and new products. And as an example, we just upgraded our core banking system, which was successfully done over the last weekend. We've added a new branch design and new premises, and we've invested significantly in new products in our technology. So all this has led to -- despite greater investment, it generated higher productivity and efficiency, which has translated through to the cost/income ratio, and we've been able to hold our costs pretty -- on a downward trend. And we are confident that this can continue as we target that sub-25% cost/income ratio whilst continuing to invest.

The third area we talked about was building on the strength of our franchise, and we've always said that, that's one of the strengths of Commercial Bank, it's a strong franchise in retail and in corporate. But we need to monetize this franchise by doing more on the transaction banking side. So we've made real progress there with our transaction banking, both in retail and corporate. So you can see our nonfunded fees have gone up over 30%. Low cost balances have gone up over 12% in the year. So this has helped to build the fundamental strength and annuity revenue of the franchise, also, at the same time, helping our net interest margin. So you can see that because of the low cost funds and the focus we've placed on some of our issuances, reducing the cost of these issuances in the international markets, our net interest margin has also gone up from 2.1% to 2.5%, and we're continuing to focus on trying to improve this.

So I would say that overall, today, Commercial Bank is in a much stronger position than it was 3 years ago. The strategy is moving us absolutely in a sustainable growth path. Are we there yet? I would be the first to say, no, we still have lots of things to do. As an example, our return on equity, whilst we've improved it from last year 8.5% to around...

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

8.2% to 9.7%.

--------------------------------------------------------------------------------

Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [4]

--------------------------------------------------------------------------------

8.2% to 9.7%. We are still underperforming the market, which is still at 13%. So obviously, we have to focus on that. Our capital ratio CET1, we are at 11% now, and that's within our range. But obviously, over time, we will continue to build that up towards where the market is.

So there's still work to do, but we've made great progress.

I will now hand over to Rehan, who will talk you through the financials in more detail, and then we can take any questions that you may have. Rehan?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Joseph, and good morning, everyone. I'll now give you a brief overview of the results, and then we can move to the Q&A session. As we've seen the results, the profit is QAR 2.021 billion for 2019. This is an increase of 20.7% versus previous year.

If you look at Page 5, this shows the quarterly progress that we are making. For the quarter, the profit is QAR 517 million, which is 25% higher than Q4 of last year, although 9% lower than the previous quarter.

There are actually a number of items that have come through in the fourth quarter, and I will highlight these. Firstly, as you can see for United Arab Bank, you are aware that we had reported this entity as an asset held for sale from Q3 of 2017. In previous calls, we had discussed that we would move this back to an associate. Firstly, the profit and loss of Q4 2017 through to the 4 quarters of 2018, there is a total of QAR 11 million at CB's share, and this is adjusted in the 2018 numbers. And that's why you see the number has changed from QAR 1.663 billion to QAR 1.674 billion as a comparative for 2018. We've also carried out the annual impairment test using a value-in-use methodology. This has meant that we've taken a goodwill impairment of QAR 414 million. In addition, we have reported our share of loss for the year within the associates line.

Importantly, we've been able to absorb the impact of this as the underlying business is strong and continues to grow. This has then further enhanced the recoveries, which are partly reflected in the release of suspended interest and partly in net provisions.

From a balance sheet perspective, we've seen loans increase by 4% as compared to December 2018. We've grown our share of government and public sector, as Joseph said, which now stands at 17%. And at the same time, we've reduced the real estate percentage, which we'd set out to do in our 5-year strategy. We did see some repayments in Q4 and settlements, which meant that our loans were slightly lower quarter-on-quarter. Again, this was expected and highlighted in our previous call.

Deposits are up 6.3% compared to December 2018, and low cost deposits are up 15%, and as you are aware, this has been one of our focus areas. We've been very active in the transaction banking proposition through our payments and cash management as well as our leading remittance products, which have resulted in higher low cost deposit balances.

If we then turn to the P&L and key ratios, you can see that total operating income has improved by 24% year-on-year. There are some exceptional items in Q4, and I will cover these. Net interest margins have improved from 2.1% in 2018 to 2.5% this year. The increase in net interest income is due to the impact of managing our cost of funds, and this is only with 1 -- half quarter impact of the Tier 2 maturity that we've spoken about in previous calls. We've also seen a boost in interest income due to the recognition of suspended interest reversals, and this is approximately QAR 300 million in the quarter.

Nonfunded income has increased by 35% year-on-year. The increase in nonfund income is across all the lines really, fees, foreign exchange and investment income. We also have a performance right scheme in place. The cost of the scheme has been included in staff costs. This is hedged, and the income is recognized separately. This income plus one-off costs -- one-off income totals approximately QAR 150 million. Due to these factors, we have included a normalized earnings column for Q4, so that you can see the underlying trend. Hence, actually, costs are at similar levels to previous quarters. The progress that we've made on operational efficiency in the bank has meant that we've achieved a cost/income ratio of 28.3% for the group and is at 25.3% for domestic bank in Qatar. Alternatif Bank has also reduced its cost/income ratio, which is now at 40.5% compared to 53.7% last year. So we're going to continue focusing on improving our cost/income ratio through the growth in income, and at the same time, invest in our technology and service delivery.

In terms of ratios, both return on equity and return on assets have improved year-on-year. The NPL ratio is steady at 4.9% versus previous quarter, but down from 5.6% at the end of the previous year. Cost of risk has now reduced to 0.68%. Our target was 0.8%, as you'll recall, so we've done better than that, as I said, boosted by recoveries. A strong litigation and recovery department working closely with the business means that we are seeing very positive benefits to our bottom line. Stage 2 loans as a percentage have also fallen throughout the year, which is a reflection of improvement and settlement. Our total capital adequacy ratio now stands at 16.4% and CET1 is at 11.1%.

Moving on to Alternatif Bank. That has delivered a net profit of TRY 155 million. This is an improvement of 33% year-on-year, driven by increased income and reduced costs. National Bank of Oman has reported a net profit of OMR 51.3 million, and that's steady year-on-year.

I also wanted to highlight that we have an Annual Analyst Day in Muscat, on the 19th of February, and look forward to meeting you there and discussing our results and our plans in more detail. But in the meantime, I'll hand you back for the Q&A session.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We will take our first question from Chiro Ghosh of SICO Asset Management.

--------------------------------------------------------------------------------

Chiradeep Ghosh, Securities & Investment Company BSC, Research Division - Research Manager & Senior Analyst [2]

--------------------------------------------------------------------------------

Congratulations on a good set of results. This is Chiro here from SICO. So I have 3 very quick questions. First one is, if you can please better help us understand the NIM, which went up in this quarter. So I understand it's partly because of the maturity of Tier 2, but I see then the interest income has gone up for the fourth quarter. So if you can throw some light on that. That's my first one. Second question is, I think, I missed your point there. So UAB -- if you can, again, repeat the classification. How it has been moved back from which quarter? And third is, are you giving any guidance related to the loan book growth for 2020?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. Let me answer those in turn. Firstly, on the net interest margin and net interest income, in particular, the main increase, there is a one-off, I would say, which is the reversal in suspended interest. I would quantify that at -- as approximately QAR 300 million that is -- that you can say is out of the norm, and that's reflected, therefore, in our normalized (inaudible). On UAB, it is in this quarter, the fourth quarter of 2019, that we have reclassified that from an asset held for sale to an associate. And on the loan book, we grew our loan book 4% in 2019. Our guidance is between 4% and 6% in 2020. And again, that is net of any further de-risking that we do.

--------------------------------------------------------------------------------

Chiradeep Ghosh, Securities & Investment Company BSC, Research Division - Research Manager & Senior Analyst [4]

--------------------------------------------------------------------------------

Just one thing on the second one about UAB. So now all the profit that's coming in would be classified as like part of investment income. What happened to the profit which you made over the last 1 year or so when it was classified as asset held for sale?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. So that -- our share of that profit has been adjusted in the 2018 comparative, and that was QAR 11 million, actually. So it's moved from QAR 1.663 billion to QAR 1.674 billion.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

(Operator Instructions) We will take our next question from Vikram Vis of NBK Capital.

--------------------------------------------------------------------------------

Vikram Viswanathan;NBK Capital;Director, Head of Buy-Side Research, [7]

--------------------------------------------------------------------------------

I have a couple of questions. My first question is on the impairment you've taken on the associate in UAE. This investment has been underwater for several quarters. Just want to understand what actually triggered the impairment in this specific quarter? And also, should we expect more impairments to come through, given that even now, the cost is still -- the cost of the investment even after the impairment is still very below the market cap of this bank. So 2 questions here. What triggered the impairment in this quarter? And are we likely to see more impairments coming through this year?

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [8]

--------------------------------------------------------------------------------

Yes. Let's -- I think on UAB, we have been talking in previous quarters. In 2018, we came very close to a sale of a 40% stake. Once that didn't happen, we've really started focusing, again, on improving the financials of the entity. We have a new CEO that joined around March 2019. She and her relatively new team that has been put in place are working very closely with us in terms of strategy and implementation. And obviously, we have the experience of what we've done in Commercial Bank to share with them. So really going forward, our focus will be on getting the best out of this entity in terms of improved financials. In terms of the impairment that you asked, Vikram, yes, once we converted it back to an associate, we had the impairment test. We did that alongside our auditors, and ensured that this was appropriate for this moment in time. There is obviously things like premiums in holding a 40% share, et cetera, which are taken into account, but we will continue to review this, firstly, alongside how the financials perform in 2020. And we'll do another impairment exercise in 2020 to see if the valuation is appropriate. Joseph, anything else?

--------------------------------------------------------------------------------

Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [9]

--------------------------------------------------------------------------------

I would just say that our focus now is on turning UAB around -- as Rehan said, last -- in 2018, we were looking at a sale process at a certain price. We believe that today that our market price does not fully reflect the value that is there in UAB. And that's why with this new CEO, we've taken the measures, we seem to clean up the bank and the loan book, and we're putting best team in management. And just like we've done at Alternatif Bank, where we have completely new management team, and we're seeing benefits of that in this year's results. Alternatif had a 10% increase in the profit, despite the challenging environment in Turkey. So we expect that over the next year and 1.5 years, 2 years, you will see the benefits of the new management team and the strong actions that they will be executing in line with a clear strategy plan. So that will bring the market price closer to the true value of the bank. So that's our focus right now.

--------------------------------------------------------------------------------

Vikram Viswanathan;NBK Capital;Director, Head of Buy-Side Research, [10]

--------------------------------------------------------------------------------

All right. And just a follow-up on this impairment. It looks like you have been opportunistic in the impairment. Given that you had a very stronger set of results, it seems like you've been opportunistic in recognizing the impairment. Should we expect the same going forward? I mean, in 2020, if you have a very strong year, you may take the chance to be opportunistic again and book another impairment?

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [11]

--------------------------------------------------------------------------------

Vikram, we'd always signaled that Q4 would be the quarter of 2019 in which UAB would move back to an associate. It is normally in Q4 that we do the annual impairment testing exercise, as I said, alongside our auditors, and I expect that to continue in 2020 also.

--------------------------------------------------------------------------------

Vikram Viswanathan;NBK Capital;Director, Head of Buy-Side Research, [12]

--------------------------------------------------------------------------------

Okay, okay. Another question on the -- a question on the cost of risk. You're currently at the 68 basis point. Is this sustainable going into next year?

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [13]

--------------------------------------------------------------------------------

Yes. Our guidance has been always that we are targeting 50 basis points by 2021. So this is the right trajectory for that. We -- as I said, we have given a guidance of 80 basis points for 2019, so we've done slightly better than that. And that's on the back of better recoveries than expected. For 2020, our guidance is 60 basis points.

--------------------------------------------------------------------------------

Vikram Viswanathan;NBK Capital;Director, Head of Buy-Side Research, [14]

--------------------------------------------------------------------------------

60 basis points, okay. We also saw that in Q4, you were able to provide us the normalized margins, which stands at 2.6%. Is this a -- can it be sustained going into 2020, the 2.6% net interest margins?

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [15]

--------------------------------------------------------------------------------

Yes. Look, I think our aim is very much to maintain these NIMs. As you know, we've had benefit of the Tier 2 maturity, which was middle of November. We have sort of half a quarter of the benefit of that in 2019, with a full year expected in 2020. So we're managing our cost of funds very well. Together with our loan yields, we believe we can maintain the NIMs in 2020.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from Ribal Hachem with Arqaam Capital.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [17]

--------------------------------------------------------------------------------

Congratulations on the numbers. I have a couple of questions, if I may. The first one is about margin. I couldn't hear exactly what you said about the cost of funds going into next year. So if you can shed some light on it. Like -- the Tier 2 bond issuance. Will it impact the cost of funds in 2020? And how about asset repricing? Well, the fee income was very strong. Is it actually sustainable? Can you throw some color on that? There's also, if you can throw any color on NBO acquisition talks. And that would be it.

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [18]

--------------------------------------------------------------------------------

If you can -- sorry, Ribal. If you can just repeat the first question. I didn't quite catch the first question, if you can repeat that.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [19]

--------------------------------------------------------------------------------

Sure, sure. It's about the margins. I couldn't really hear what you talked about the cost of funds, how it would be managed in 2020? And so about -- second question about Tier 2, basically, bond issuance. How it will impact the cost of funds?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. So on the net interest margin. We have had a boost in Q4 because we had some suspended interest reversal. Underlying net interest margin was approximately 2.6% in Q4, as I said. And combined with your second question on the Tier 2, this was a 10-year bond that matured in the middle of November of 2019. It was taken out in 2009 at 7.5%. So clearly, once that matured, we've seen a very big benefit on our cost of funding. Together with generally cost of the deposits going down, a very, very detailed focus on net interest margins and cost of funds, in particular, has meant that we are in a strong position on NIMs going into 2020. And we believe that the current NIM at -- normalized at 2.5% for the year is sustainable going forward. On the follow-up question -- sorry go ahead.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [21]

--------------------------------------------------------------------------------

So I just wanted to know if you expect an increase in the issuance of Tier 2 bonds?

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [22]

--------------------------------------------------------------------------------

We are not planning to do a new Tier 2 bond issuance during 2020. That's because, basically, our focus will be on Tier 1 and CET1. Our overall capital adequacy ratio, we believe, is adequate at 16.4%, but we are looking to improve our CET1 and Tier 1 as a whole.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [23]

--------------------------------------------------------------------------------

Okay. I see. And if you can go back to the fee income, is it sustainable? Because it was really strong, is it sustainable or if it is...yes.

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [24]

--------------------------------------------------------------------------------

Yes. Look, our overall fee income has been strong both in Qatar and in Turkey, actually. So we've seen the subsidiary contribute very strongly there as well. We can see that it is sustainable. I did say that together with the hedge on the performance right maybe there's about QAR 150 million overall, which you can say is of an exceptional nature. But the underlying fee income is strong and sustainable and we believe will be repeated in 2020.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [25]

--------------------------------------------------------------------------------

Okay. And also just going back into the margins. So how do you think -- how do you factor in this asset repricing? How would it impact the NIM equation?

--------------------------------------------------------------------------------

Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [26]

--------------------------------------------------------------------------------

Really, asset repricing, we -- obviously, as interest rates drop, we had to reprice downwards. So our aim is always to make sure that we are competitive in the market. But we are, at the same time, making sure that we are managing that downward pressure on rates as far as possible. And we have extensive discussions with our clients, and it sometimes stays over -- a period of time rather than immediate. So it's a combination of remaining competitive, whilst at the same time, having active discussions with our clients to manage the downward movement over time.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [27]

--------------------------------------------------------------------------------

Okay, I see. Sorry, but the last question is the risk -- if you can give basically -- shed more color on NBO acquisition talks. Any color you can give, basically?

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [28]

--------------------------------------------------------------------------------

Look, I think there was something on Bloomberg, which I think was frankly a bit of an overstatement. But any discussion on -- what I said was that Oman is an important market for us, and NBO is an important player in the Omani market. Any discussions on mergers, et cetera, will be discussed by the NBO Board, and then they will take the decision. And then CB, as a shareholder, will then also play its role as a shareholder in whatever is the appropriate forum. So that's as far as discussion is concerned. But for us, Oman remains an important core strategic market and NBO is an important core strategic holding.

--------------------------------------------------------------------------------

Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [29]

--------------------------------------------------------------------------------

Again, congratulations on the numbers.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

We will take our next question from (inaudible) of SICO Bank.

--------------------------------------------------------------------------------

Unidentified Analyst, [31]

--------------------------------------------------------------------------------

I have actually one question. Sorry, I missed your explanation on the increase in cost in the fourth quarter. What is -- could you again explain this one-off element?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, of course. On the staff costs, we've recognized performance rights scheme, which is in place for the staff here. And there is a hedge to that scheme. So therefore, it neutralizes on an income and cost basis, but we do have to show -- under IFRS, we have to show them both separately.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So basically, your income side has gone up by the hedge income and your cost side has gone up (inaudible) by the notional cost of....

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [34]

--------------------------------------------------------------------------------

Yes, it's a gross-up that we have...

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

(inaudible) gross-up. You've got to net that to get the real underlying business ratios.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Our next question today comes from Aybek Islamov of HSBC.

--------------------------------------------------------------------------------

Aybek Islamov, HSBC, Research Division - Analyst [37]

--------------------------------------------------------------------------------

So a couple of questions from me. On the fee income, you mentioned that there is QAR 160 million of a nonrecurring nature, right, in 2019. So if that doesn't repeat, what happens with the fee income in 2020? It looks like low single digit or it may decline. Is that correct or no? That's my first question. And what that nonrecurring nature relates to? Is it -- does it have to do with this IFRS 2 adjustment or no? Well, that's -- I just want to understand what's happened there?

And I think, secondly, what's your normalized run rate for the staff expenses going forward, right? So in 2019, it was close to QAR 800 million. Again, there is a reclassification of stock options that you explained there in your footnotes. So what's the implication for costs going forward here? That's my second question.

And I think, thirdly, I was just curious to know about asset growth outlook. Where do you expect growth to come from? Is it government bonds? Or is it loans?

And in relation to growth, I think that will be the fourth question now. Is Central Bank of Qatar considering to revise risk weight for sovereign bonds of GCC countries? The reason I'm asking this is because in Kuwait, there is this implementation of stricter risk weightings on GCC bonds of other GCC countries. Is Qatar going to implement anything along these lines?

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [38]

--------------------------------------------------------------------------------

Aybek, let me answer those questions in the order you gave them. Firstly, yes, I've said on the fees that approximately QAR 150 million is of a nonrecurring nature. And that's tied into your second question around staff costs and the performance rights that I mentioned earlier. So basically, that -- because that is hedged, you have seen that in both sides, both in the fees and in staff costs, there is this increase. So the underlying staff costs are actually very similar year-on-year and quarter-on-quarter when you take that out. That's why there is a normalized column that we've also shown in -- on Page 5 where you can see what the impact is really without those factors in there. In terms of asset growth, so loan guidance we are giving is between 4% and 6% in 2020. Slightly higher than what we achieved in 2019 is our expectation. Your last question was on risk weightings by Central Bank on government bonds. We're not aware -- I'm not aware of any discussions on that front. But if I hear anything, of course, I will come back to you.

--------------------------------------------------------------------------------

Aybek Islamov, HSBC, Research Division - Analyst [39]

--------------------------------------------------------------------------------

One question. What's your appetite for government bonds, Qatar government bonds? Reason I'm asking is that a number of Qatari banks increased exposure to government bonds. I believe they are fixed rate. And obviously, when rates fall, that's kind of a good asset to have on the balance sheet.

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [40]

--------------------------------------------------------------------------------

Yes, of course, we're always looking at the right mix within our asset book, and government bonds have attractive yields, and therefore, are an attractive investment for ourselves as well as other banks.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

Our next question comes from (inaudible) Franklin Templeton Investments.

--------------------------------------------------------------------------------

Unidentified Analyst, [42]

--------------------------------------------------------------------------------

You explained earlier that Alternatif actually saw -- witnessed a strong increase in your nonfund income. Could you explain what drove that at Alternatif?

--------------------------------------------------------------------------------

Joseph Abraham, The Commercial Bank (P.S.Q.C.) - Group CEO [43]

--------------------------------------------------------------------------------

A lot of that was around some of their treasury income. That actually helped to bolster -- there was a lot of hedging which went on in the Turkish economy given the volatility. So they saw a very good contribution from their treasury area, particularly in these for their interest rate and currency swaps.

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [44]

--------------------------------------------------------------------------------

Yes. And also, Commercial Bank and Alternatif Bank have combined on a number of transactions where the customer is operating in both countries. And that has led to cross-currency swaps, interest rate swaps. So that's been a good additional source of income for both Commercial Bank and Alternatif.

--------------------------------------------------------------------------------

Unidentified Analyst, [45]

--------------------------------------------------------------------------------

So just following up on this, would you expect this to be sustainable in 2020 and going forward?

--------------------------------------------------------------------------------

Rehan Khan, The Commercial Bank (P.S.Q.C.) - EGM & CFO [46]

--------------------------------------------------------------------------------

Yes. Look, with Alternatif Bank, we've been working very hard with them over the last couple of years. As Joseph mentioned, the management team is a very high quality that we put in place there. And we expect that the income that they're making is sustainable and growing going forward.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

(Operator Instructions) At this time, we have not received any further questions. Now I'll hand this back to our hosts for any additional or closing remarks.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Great. Thank you very much. I'd just like to say that we have our Annual Analyst Day function in Muscat on 19th February, and we look forward to meeting all of you there, where you can meet our business heads and get a greater flavor of how the bank is functioning and where they're seeing the individual businesses. So we will be sending out the invites, and we'd be very happy to -- if you join us there.

As always, our team -- Rehan and his team is available for any further queries or clarifications that you may have. So please do let us know if you have any of those. After that, I don't think we have any further questions. So I'm sure you have lots of reports to write up, and I'll let you get on with that.

So thank you, once again, for joining us, and wish you a good day. Thank you.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

This concludes today's call. Thank you for your participation. You may now disconnect.