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Edited Transcript of QNBK.QA earnings conference call or presentation 16-Jan-20 9:30am GMT

Q4 2019 Qatar National Bank QPSC Earnings Call

Jan 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Qatar National Bank QPSC earnings conference call or presentation Thursday, January 16, 2020 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mark Abrahams

Qatar National Bank (Q.P.S.C.) - Assistant General Manager of Treasury

* Ramzi Talat A. Mari

Qatar National Bank (Q.P.S.C.) - Group CFO

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Conference Call Participants

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* Aybek Islamov

HSBC, Research Division - Analyst

* Edmond Christou

Bloomberg Intelligence - Analyst

* Hela Romdhani;Qatar Insurance Company;Analyst

* Naresh N. Bilandani

JP Morgan Chase & Co, Research Division - Research Analyst

* Rahul Bajaj

Citigroup Inc, Research Division - Banking Sector Analyst

* Ribal Hachem

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

* Waleed Malik Mohsin

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good day and welcome to the QNB Group's Quarter -- Fourth Quarter 2019 Results Conference Call. Today's conference is being recorded. (Operator Instructions).

At this time, I would like to turn the conference over to Rahul Bajaj. Please go ahead, sir.

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Rahul Bajaj, Citigroup Inc, Research Division - Banking Sector Analyst [2]

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Thank you. Thank you very much. Good evening, good afternoon, good morning, everybody. This is Rahul Bajaj. On behalf of Citi Research, I would like to welcome you to Qatar National Bank's Full Year 2019 Results Conference Call. With us on the line, we have the Group CFO, Mr. Ramzi Mari; Mr. Noor Mohammad Al-Naimi, the Group General Manager Treasury; and Mr. Mark Abrahams, the Assistant General Manager Trading and Treasury at QNB Group.

I now hand over the call to Mark to commence the call. Please go ahead, Mark. Thank you.

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Mark Abrahams, Qatar National Bank (Q.P.S.C.) - Assistant General Manager of Treasury [3]

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Thank you very much, indeed, Rahul. I will begin by giving a brief overview of the macroeconomic environment in Qatar. I will then go on to cover QNB's annual financial results for the year ended 31st of December 2019 and then finally, open up the floor to questions and answers.

Qatar's economic growth is expected to accelerate to around 3% over the next few years, as tailwinds from increasing oil and gas production more than offset slower growth of construction. Higher hydrocarbon revenues and abundant feedstock will have positive spillovers for the manufacturing and services sectors, boosting activity in spending, as Qatar makes final preparations for hosting the 2022 FIFA World Cup.

Qatar now has world-class transport and logistics infrastructure, with initial phases of Hamad International Airport, Hamad Port and the Doha Metro all up and running smoothly. This excellent transport and logistics infrastructure will support and enable diversification and stronger private sector growth.

Having already delivered on most critical megaprojects, the focus of infrastructure and project spending will then shift to the sharp crossing and further expansions of Lusail City, Qatar Rail, Hamad International Airport and Hamad Port. This will allow Qatar to continue to make use of experience delivering megaprojects, whilst freeing up resources for other forms of investment.

In addition, Qatar front-loaded the development of new legislation and key structural reforms, including for foreign ownership of companies operating in almost all sectors of the economy, labor laws and the program for permanent residency and visa waivers. More recently, the Investment Promotion Agency, IPA, has been launched as a one-stop-shop for investment solutions with a mandate to attract more FDI into all of Qatar's priority sectors. The IPA pursues targeted sector-specific investment promotion agendas by advising key stakeholders on development policy and coordinating investment marketing activities. All of this preparation will allow Qatar's economy to thrive under the spotlight of the 2022 FIFA World Cup.

Subsequently, the increasingly dynamic and diversified private sector will be further stimulated by the activity and additional revenues associated with the next phase of LNG expansion. 6 new LNG liquefaction trains will increase Qatar's LNG production by over 64% to 126 million tonnes per annum by 2027.

I will now move on to QNB's annual financial results for the year ended 31st of December 2019. Key financial results for the year ended 31st of December 2019 are as follows: Full year net profit increased to QAR 14.4 billion or $3.94 billion, up by 4% compared to last year. This was mainly driven by operating income, which increased to QAR 25.6 billion or $7 billion, up by 4% compared to 2018, demonstrating QNB Group's success in maintaining growth across the full range of revenue sources.

Total assets reached QAR 944.7 billion or $259.5 billion, up by 10% from December 2018. This was driven by growth of 10% in loans and advances to reach QAR 678.7 billion or $186.4 billion. QNB Group remained successful in attracting funding, which resulted in an increased customer funding of 10% from December 2018 to reach QAR 684.5 billion or $188 billion. This maintained the Group's loan-to-deposit ratio at 99.2%.

The group was able to maintain the ratio of nonperforming loans to gross loans at 1.9%, a level considered one of the lowest among financial institutions in the Middle East and Africa region, reflecting the very high quality of the group's loan book and the effective management of credit risk. The group's conservative policy in regard to provisioning continued with the coverage ratio being maintained at 100% as at the 31st of December 2019.

The capital adequacy ratio stood at 18.9% at the end of last year, higher than the regulatory minimum requirement of the Qatar Central Bank and Basel Committee of 16%. The group is keen to maintain a strong capitalization in order to provide support for future strategic plans.

Thank you very much, indeed, for your attention. We can now turn to questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take the first question from Ms. Amit Mamtani from Goldman Sachs.

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Waleed Malik Mohsin, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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Waleed Mohsin from Goldman Sachs. Just wanted to ask about the outlook for the international business. We've seen the macro, at least outlook turned positive for the Turkish economy. And just wanted to get your thoughts on the outlook for the performance of Finansbank during 2020. Some of the other banks are quite positive and guiding for substantially higher loan growth, improving margins and improving cost of risk. So I wanted to get your thoughts on how you see Finansbank performing this year.

And secondly, if you can also comment on the outlook for the Egyptian business. And finally, the third point would be on the margins for the Qatar domestic business.

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [3]

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Waleed, we think with Finansbank next year budget anticipate a growth in the balance sheet between 13% to 15% and 15% to 17% in terms of profitability. For QNB Alahli, it is balance sheet, 14% to 16%; and profitability, 19% to 21%. So very aggressive budgeted number for both institutions.

For the group as a whole, we aim to generate balance sheet growth of 6% to 8% and profitability growth around -- between the 4% to 6%.

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Waleed Malik Mohsin, Goldman Sachs Group Inc., Research Division - Equity Analyst [4]

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So Ramzi, just a follow-up question. If you look at the Finansbank guidance that you provided, the bottom line growth of 15% to 17%, it seems to be very conservative in the context of some of the other Turkish banks. Loan growth seems to be in line, whereby banks are guiding for early double digits to mid-teens. But with the cost of risk and net interest margins, banks are thinking that earnings growth will be even north of 30%, 40%. So I just want to get your sense on your guidance. Is it because you are going to be -- you continue to be conservative on cost of risk? Or is there any other underlying factor driving your conservatism on the Turkish operation?

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [5]

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I really doubt growth will be 30%. I think there will be a lot of pressure next year in Turkey regarding margins. And that's why I don't think margin will materially grow next year. I think that if they stay around what we have seen this year between the 450 to 500 basis points, that will be very good. The main reason for the conservative projection is, again, we need to continue to build on the coverage ratio. Finansbank coverage ratio today is around 90 basis points. We need to push this further. The aim is to reach that number to -- close to 100% in the next 2 years. Today, coverage ratio, for example, in Alahli Bank, is 150%. In the group as a whole, it's close to 100%. So we want to be more conservative in terms of building provisions in Finansbank in the next 2 to 3 years.

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Waleed Malik Mohsin, Goldman Sachs Group Inc., Research Division - Equity Analyst [6]

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Got it. And final follow-up, Ramzi, cost of risk on the Turkey business. 2019 versus 2020, what trajectory do you see on the credit-loss ratio?

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [7]

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It should be exactly -- close -- very close to the number that we have seen this year. It might be a little bit higher because of I need to push more the coverage ratio. And that's why we -- based on my numbers, overall, cost of risk for -- as at December, was around 117 basis points. So I think if we assume the same percentage and the growth in business, so that should be fine.

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Operator [8]

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We will now take the next question from Edmond Christou from Bloomberg.

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Edmond Christou, Bloomberg Intelligence - Analyst [9]

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Edmond Christou from Bloomberg Intelligence. This is my first time on the call, and most of my question has been answered. I just have a question that maybe it's simple. I just want to understand the size of the investment portfolio outside the domestic market. It's almost half -- 50% of your investment portfolio is invested outside the GCC. I believe when I look at the number and I catch the number, you generate good yield on this investment or investment return on this portfolio. Are you expecting this to come under pressure this year? That's one thing.

The other thing is, what is the comfortable LDR ratio you will be operating on for the year? And also, with -- when I look at your split of sector I see decline in the government, you mentioned in the last call, there have been no repayments. Is this the only reason for that thing?

And the other thing, as you see more growth coming from the private sector, has this to do with any changes in the business mix? Should we expect cost of risk in the domestic market to change in the long term? I mean if I look at your 10-year average cost of risk, we're around 43 basis points. Now we are around 48. So what's trajectory, going forward, to the change in the business mix?

And my last question will be strong capital generation in Q4 compared to Q3, even if I adjust for dividend, just a question here is, what's driving it apart from earnings? And the last question is on FSR. You are at 104 now, and I believe most of the credit growth...

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [10]

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Excuse me, I need to stop you there. This is not an interview. You need to give room to other people, please. Limit your questions to maximum 2 questions so that I can handle others, please. This is not an interview by a journalist. And please also note that this phone call is supposed only to be for investors, not to journalists.

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Edmond Christou, Bloomberg Intelligence - Analyst [11]

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Sorry, I'm not a journalist. I'm part of Bloomberg Intelligence, the research arm of Bloomberg. So I start covering the stocks, and I'm asking question to update my model and be able to...

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [12]

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I think it is -- I don't have a problem to answer your question. But with the extent of the questions that you are asking, this should be on a one-to-one meeting. You and I have not met before. Let's arrange for a meeting one-on-one, and I will ensure that I can handle all your question on a one-to-one meeting because this would be much more fruitful for you to build your model.

Anyway, I will run through your questions very quickly. The investment book is mostly Egypt and Turkey. We do not expect major changes in terms of yield. However, in terms of amount, considering the changes in tax regime on yield, on investment in Egypt, that book will gradually be dropped and more focus will be on increasing loans in Egypt. We have seen this in 2019, and this will continue in -- further.

LDR. We always prefer to keep our LDR around the 100%. Currently, we are 99.2%. We should stay around that number, maximum 100%. Business mix. This year, we have seen a big drop in government loans, around QAR 50 billion. We always say that when the government is liquid, they tend to start repaying loans with QNB, and we have seen this in this year. This forced us as an entity to focus more on the private business. Historically, our market share in the government business is 65% to 70%, whereas in the private sector, it tends to be around 30%. That's why it was a major challenge for QNB this year to focus the attention to the private sector. It's not easy to be done. We were able to increase our market share between the 2% to 3%. This will be the focus going forward.

Will this reflect on an increased cost of risk? Gradually, yes. However, in 2020, we still estimate our cost of risk to be not more than 48, maximum 50 basis points, which is very close to what we have seen in 2019.

Capital-wise. The capital adequacy ratio is 18.9%, very close to last year, which is around 19%. The increase in capital that you have seen is mostly due to what we have returned in profitability.

(technical difficulty)

Payout ratio was close to 40 -- is around 39%, 40%. This is always the guideline we give about payout ratio, and we expect this to continue in the longer term. Did I miss any of your questions?

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Edmond Christou, Bloomberg Intelligence - Analyst [13]

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That's it.

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [14]

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Thank you very much. And please make sure to arrange and to be -- and I would be more than happy to sit one-on-one to ensure that you have proper model in terms of the projection for the group.

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Operator [15]

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[Operator Instruction] We will now take the next question from Ribal Hachem from Arqaam Capital.

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Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [16]

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So I have a couple of questions. Could you throw some color on why the fees from lending activities have actually dropped in 2019 despite strong volumes? It would also be helpful if you can talk a little bit about sector growth dynamics in 2020. I mean the government sector has declined in 2019 on both sides of the balance sheet.

Third question, given the strong loan growth in the system and the [HCG] levels close to 125%, are you seeing any pressure on NIM coming from liquidity, despite lower-rate environment? And the last question, if you can please repeat the guidance for Finansbank and QNBA for 2020? Because I missed it.

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [17]

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Okay. I will start with the end because this is the question that we already handled. Finansbank balance sheet, we said 13% to 15%; profit and loss, 15% to 17%. Balance sheet miss. This is not the first time that we have seen this. If we go 4, 5 years ago when oil prices was more than $100, the government repaid more than QAR 70 billion of loans in QNB in 2 years. During that period of time, we materially focused on lending to private sector in Qatar and internationally. This year, the focus, again, was the same, considering that we have seen the same momentum of repayment loan. And this always happens. We are used to it. However, the push in QNB this year, from a strategic point of view, to try to diversify where we are bringing our loans was materially more aggressive, and this is the aim, especially under the new management of the group.

NIM. At the beginning of the year, we were talking about a drop of 4 to 5 basis points, that's what we were talking about in 2019. However, with the drop of Fed rate, we were able to quickly manage our cost of funding, and as a result, a drop in -- on NIM was only 1 basis point. Now next year, again, I still expect a drop of 3 to 4 basis points. I always said that what is sustainable for QNB as a group, considering our size, is anything between the 225 to 240 basis points. This is where we should be in the next 5 years. Do I expect to continue to enjoy 255 basis points in 2025? No, because this will be extremely difficult.

Did I miss anything in terms of your questions?

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Ribal Hachem, Arqaam Capital Research Offshore S.A.L. - Analyst [18]

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No. That would be it.

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Operator [19]

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We will now take the next question from Aybek Islamov from HSBC.

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Aybek Islamov, HSBC, Research Division - Analyst [20]

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So I would say, a couple of questions from me. Well, firstly, I'm wondering why you did not offer a higher dividend per share based on 2019 results. The reason why I say that is because the capital generation is quite good. Your book value growth is quite impressive and partly because you didn't have this currency devaluation losses in Turkey? So that's my first question.

Second question, I wanted to ask you about the Stage 2 loan ratios, which seem to be deteriorating sequentially, again, in Q4. Where that deterioration is coming from and what are the implications for nonperforming assets? I think that's pretty much it, yes.

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [21]

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In terms of dividends, we always said that strategically, we aim to maintain a payout ratio of 40%. The Board is committed to that ratio, and we have been executing based on that criteria for the last 5 years. I think this should continue because the Board is keen to maintain a buffer for the group to continue to grow. This year, the balance sheet grew by around -- overall loans and deposits by 10%, even though the guidelines that they talk about 6% to 8%. But definitely, we aim to push the balance sheet as much as possible, while maintaining the profitability as conservative as possible.

And this is -- bring us to the second question, which is Stage 2 loans. We have 2 options, either to be relaxed or to be as conservative as possible. Whether we want to be proactive in terms of how we built the model regard

(technical difficulty)

what is Stage 2, what is Stage 3. QNB is known to be a very conservative financial institution. Today, QNB is not allowed to maintain a coverage ratio based on IFRS 9 over and above the 100%. And that's why the ratio today stands at 100%. Before, it used to be 114%. But now the standard does not allow me to have more than 100%. That's why I need to start -- as a group to start building more provisions on Stage 2. And that's why we need to be very proactive in terms of loans that we believe they are under pressure. This is why you are seeing the increase in Stage 2. And even in 2020, we continue to see this. We will continue to be extremely conservative in Stage 2. We also will continue to add more and more provisions on stage 2 to compensate us for the limit that we used to have that now we have -- sorry, that now we have on Stage 3. Coverage ratio on Stage 2 today is 8.4%. We want to build on this. The target is to bring it between 10% to 12% in the next 2 years, and this will not be easy. This will -- this is why we are giving guideline of 4 -- only 4% to 6% maximum profitability.

In other words, you will see more shifting of building provisions towards Stage 2. And to be able to do this, we need to be very proactive in terms of reclassification. Some of that comes -- we believe might become under pressure into Stage 2. Now where these pros are coming from? Across the board, whether it was Finansbank, QNB or Egypt.

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Aybek Islamov, HSBC, Research Division - Analyst [22]

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Okay. Understood. That's very helpful. And you mentioned that on cost of risk, you gave some color there in 2020, despite the push in the private sector lending, you expect cost of risk to be more or less at the same level as 2019. But longer term, you see a gradual increase, you mentioned, right? What sort of level do you see for the cost of risk?

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [23]

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No, I did not say that I expect an increase. What I said is that I still expect it to continue to be between the 48 to 50 basis points. But considering the increase in the balance sheet side in terms of the overall impact on the profitability from a number, it will increase gradually. Last -- for example, in 2018, overall provision was close to 3 billion. In 2019, it became 3.2 billion. So that number will gradually increase, not the cost of risk part.

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Aybek Islamov, HSBC, Research Division - Analyst [24]

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Understood. So to clarify my view, the fact that you're focusing more on private sector loans within Qatar, yes, it does not mean that your cost of risk level will change dramatically, right? It will -- it should not affect your cost of risk. Is that correct, my understanding?

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [25]

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Don't forget that the cost of risk, it is mostly on the private sector business. The increase in private sector will be gradual. It will not -- this year was definitely an exceptional year. I don't think we're going to see the same momentum in the next 2 years because there were a big -- a lot of appetite this year. We don't expect the same appetite in the next 2 years. Still, as long our profitability, between the 4% to 6%, the cost of risk will move towards that end. In other words, cost of risk will go up in order to ensure that our growth in profitability is very well managed. As long we are maintaining the growth of net interest income, the growth in other income and the growth of cost between the 4% to 6%, which will allow us to maintain a growth in profitability around that number, 4% to 6%, cost of risk will continue to be 48 to 50 basis points.

However, just to make my message clearer. However, if we are able to manage our cost of funding better and our growth in net interest income will -- sorry, in net interest income is higher than the 5% to 6% and the reflection on profitability positively is higher, you will see cost of risk to be a little bit higher to ensure that the growth in profitability is managed around the criteria that we saw in 2019. I think my message is clear.

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Operator [26]

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We will now take the next question from Hela Romdhani from Qatar Insurance Company.

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Hela Romdhani;Qatar Insurance Company;Analyst, [27]

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This is Hela Romdhani from Qatar Insurance Company. Please, I have one question. What's the target capital adequacy ratio for Finansbank? And what's the same for the group?

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [28]

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Finansbank, today, they are 15.2%. The minimum is around 12%. We need to keep it around that number. Actually, we need to push it even further. We prefer to keep it 16% to allow the entities to grow aggressively in the next 3 to 5 years.

For QNB, the minimum is 16%. Today, we are 18.9%. We are very relaxed on that level. The aim is to maintain our ratio not less than 2% over and above the level of our QCB, which is 16%.

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Operator [29]

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We will now take the next question from Naresh Bilandani from JPMorgan.

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Naresh N. Bilandani, JP Morgan Chase & Co, Research Division - Research Analyst [30]

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Just 2 questions, please. One is on the dollar mismatch on your balance sheet, I think, which was a long-standing focus of the market, and you were able to completely close it. Congrats on the strategic change. I think this is quite positive. And I just -- could you please provide some insight on how should we see this evolving from a funding strategy perspective going into the medium term? Also, it's quite positive that I did not see any material pressure on the NIM from such an action, .quite pleased to see this, but can you just explain how were you able to achieve this? So that's the first part of the question.

And the second is, as a franchise, you've been relatively quiet on the M&A for the past few years after the blockade. Can you just please provide some insight into this strategy as the economic momentum builds up? And can you -- how do you see the international growth over the long term? Do you have anything in the plan for the next couple of years?

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [31]

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M&A, we will continue to be opportunistic. Today, we are not looking at anything. Do we expect anything major in 2020? I really doubt it. But if something significant comes, we'll definitely look at it. But we are not in a hurry. We need to study our options very carefully. And we are not under any pressure to do any acquisitions because the priority today is to focus on growth within the entity, especially in Qatar, Egypt and Turkey.

The FX position that we always had, we always said that most of our customers, cash flow comes in dollars, especially the government. And having the government loans in Qatar riyal is not correct. And we have been in continuous discussion with the government to ensure that we shift that position to dollar. In 2019, we were successful in doing that. And based on this, the mismatch disappeared.

Regarding the impact on margin, it will be nothing. All large corporates that we deal with and the public sector entities that we deal with will get the same margin in regard -- whether their borrowing is in Qatar riyal or in dollar. So the impact on QNB profitability will be close to 0.

Please note that all these customers are key customers. They clearly understand that our cost of funding in dollar is lower than in Qatar riyal. And that's why when they shift their loans to dollar, their aim and in the discussion, their margin will continue to be the same. We did not give a lot of attention to the margin, even though we could have pushed to have 3 to 5 basis points more because our main aim was to close the mismatch. And that's what happened in 2019.

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Operator [32]

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We will now take the next question from Sahar Al Lahham from Al Faisal International For Investment.

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Unidentified Analyst, [33]

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It's [Muhammad] from Faisal Investment. My question, I have only one question. It's about the loan book, I mean, the growth. One is, do you think there is sustainable growth for the group here in Qatar and in Turkey and in Egypt I mean in terms of sustainable growth rate and sectors? I mean I see that the commercial sector has a huge increase this year. And do you think this is sustainable, I mean the rates -- the growth rates?

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [34]

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In Qatar, of course, no. We do not expect that we are going to see the same growth that we have seen in Qatar this year. This -- as I mentioned at the beginning, this was an exceptional year. In 2020, it will be strong, but this will not be at the same level that we have seen today. There is a push from the government to encourage the private sector to play a bigger role in the economy. And that push will encourage more investment in the economy by the private sector, which will give us more room to lend. However, we'll just continue at the same level that we have seen this year, that will be very difficult.

Please note that if the growth in the private sector in Qatar go back to normal, which is let's say between 5% to 7%, we will go back and shift our attention to lending outside Qatar. So the rule is still there. However, all in all, what is sustainable is the growth between the 6% to 8%, maximum 9%. This is what is sustainable for the group.

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Unidentified Analyst, [35]

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Okay. And how much of this will be drive by the international operations?

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [36]

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Sorry, can you explain your question?

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Unidentified Analyst, [37]

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I mean you said the sustainable growth will be from 6% to 8%. How much of this 6% to 8% will be generated outside Qatar, I mean from -- primarily from Egypt and Turkish business?

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [38]

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This year, budget-wise, growth in loans for Egypt and Turkey is very strong. We said, Egypt is around 13% to 15% in EGP. In Qatar, it is 14% to 16%. In Turkey, we are going to be a little bit disciplined this year in terms of the growth in loans. We only expect a growth in Qatar riyal of 6% to 8%.

So still, growth in international business, this -- in 2020 and going forward will be higher than the growth in Qatar, okay? This is exactly what we said at the beginning of 2019. But what we have seen in 2019, a big push by the private sector, especially with large corporate, to invest in the system, encouraged by the government. And that's why we captured a big chunk of that growth.

Will we see this in 2020? I think it will continue to be strong, however, not at the same momentum. Which will allow us to move more to international business. And international business, not only Turkey and Egypt, also London, Paris, Singapore and all other entities where we operate, we'll probably see stronger growth in 2020 and going forward.

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Operator [39]

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(Operator Instructions) We will now take the next question from [Thierro Gosh] from [Seagull].

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Unidentified Analyst, [40]

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I have 2 questions. My first one is related to the liquidity because we don't get -- we don't physically able to visit Qatar, so if you can give us a sense of what is the liquidity situation in Qatar? Because other Qatari banks, I'm seeing, they're having a loan-to-deposit ratio of quite -- a quite high loan-to-deposit ratio and your deposit also, part of it is coming from outside Qatar. So if you can give us a sense of the liquidity, that is my first question.

My second question is related to the asset quality. So if you can get a sense -- if you can give us a sense of what exactly happened in the fourth quarter? Why is your provision a little high? And related to that question is, as you were explaining that related to Stage 3 loans, your provisioning is kind of capped. So what is the regulation related to Stage 2? Can you be extra conservative and getting a bigger chunk of loan as Stage 2? Is that permitted? Just want to get a sense.

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Mark Abrahams, Qatar National Bank (Q.P.S.C.) - Assistant General Manager of Treasury [41]

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It's Mark here on the liquidity. On liquidity locally here in Qatar, the LDR ratios of the local banks historically have been very high. They're actually coming lower. The trend is lower. The conditions of the local market are actually very healthy. If we break it down into Qatar riyals and to U.S. dollars, there is -- I would say there's a balance, not only with QNB, with the other local banks in the local currency market.

With regard to U.S. dollars, again, there's been moderate loan growth for QNB and the other local banks. And you've seen an increase, I think, in wholesale funding initiatives by -- that by ourselves and our peers over the last couple of years. So the liquidity buffers have been very, very prudently gathered by ourselves and the other local banks. And I think that from an efficiency point of view, the only reason that you see QNB LDR where it is, is obviously striving to maintain that optimal balance between efficiency and profitability. That's certainly from our side. And again, from our peers, the smaller banks here, again, historically, these ratios have been high. And they are -- whilst they remain high, relatively speaking, they are coming down.

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [42]

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Now in terms of asset quality and what you have seen in the fourth quarter in terms of provisioning, this is always the case in QNB. QNB's provision in the fourth quarter usually the higher than any other quarter. If you looked at QNB for last 5 years, this is always the case, and this will continue because at the end, this is the number that we need to plug in in order to see exactly what is the overall growth in the profitability for the group. Is there any cap on the coverage ratio for Stage 2? No. It's all dependent on the model that you have, and you can be as conservative as possible in regard to the model. For example, the collateral

(technical difficulty)

you have, how much you want it to be conservative in the model, it really depends on the institution.

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Operator [43]

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There are no further questions in the queue at this time.

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Rahul Bajaj, Citigroup Inc, Research Division - Banking Sector Analyst [44]

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Operator, this is Rahul from Citi. If I may, and as we wait for the questions, I have 2 quick questions to ask, actually, to Ramzi. The first one is around the AT1 coupon number. So we've seen a decent year-on-year jump in the AT1 coupon number in 2019 versus 2018. Just wanted to understand what's driving that jump.

And the second question is more like a longer-term view question. We've been talking about the 2022 event and how the country has been preparing for it. But how do I look at drivers beyond 2022? What will drive growth beyond 2022? How should we think about it? Any thoughts there would be very useful.

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Ramzi Talat A. Mari, Qatar National Bank (Q.P.S.C.) - Group CFO [45]

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Now in terms of AT1, it's simple. The amount that we had in '18 was QAR 10 billion over the year unless -- until December. Whereas in '19, it was QAR 20 billion all over the year. So the cost of the total perpetual loan in '18 to '19 is totally different because we used to have QAR 10 billion. In '19, we became QAR 20 billion. This is the reason. Now in terms of the growth beyond 2022, our Chief Economist will handle that question.

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Unidentified Company Representative, [46]

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In terms of longer-term growth beyond 2022. I would emphasize 2 things from Mark's introductory speaking notes. One of them is the LNG expansion. So LNG production going up to 126 million tonnes per annum by 2027, so that will drive the hydrocarbon side of things. But of course, there's also all of the reform efforts and infrastructure investment that Qatar's already done, which will drive the private sector diversification away from hydrocarbons and the dynamic private sector growth will continue to grow supported, if you like, by those hydrocarbon revenues as well. So there's a sort of dual drivers of growth in the medium to longer term.

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Rahul Bajaj, Citigroup Inc, Research Division - Banking Sector Analyst [47]

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Operator, are there any more questions from the line?

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Operator [48]

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There are no further questions in the queue at this time.

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Mark Abrahams, Qatar National Bank (Q.P.S.C.) - Assistant General Manager of Treasury [49]

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Okay. Thank you, everybody, for taking the time with us today. We have nothing else to add. So if you have any further questions, you have our contacts in the Investor Relations team. Thank you very much, and have a good day.

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Operator [50]

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