Managing Director’s report

Commercialbank delivered resilient results in 2009 reflecting both the prudent and pragmatic approach that we have taken in managing the business through the global financial downturn and also the strength of our franchise. The Bank is committed to a clear strategy of controlled and sustainable growth whilst remaining vigilant to the changing economic environment.

The Bank’s net profit for 2009 was QR 1,524 million down 11% compared with the profit for the year ended 31 December 2008. Net profit was impacted again by the global financial downturn as we took provisions of QR 461 million against the impairment of our loan portfolio and QR 182 million against our investments.

Net operating income increased to QR 2,778 million for the year ended 31 December 2009. The Bank has managed its balance sheet proactively throughout the year improving yields on certain asset classes and reducing the cost of funds through diversification of its funding sources. These actions led to an increase in net interest income of 30% to QR 1,584 million compared to 2008. The increase in net interest income was, however, largely offset by lower fee income from reduced lending activity and also due to the smaller number of opportunities to realize gains from our investment portfolio. Net interest margin improved to 3.4% in 2009, up from 3.0% in 2008, reflecting tight balance sheet management which has also enabled the Bank to reduce the cost of borrowing to its customers during the second half of the year as liquidity pressures eased.

Total assets at QR 57.3 billion were 7% lower than  2008 reflecting a reduction of QR 8.7 billion to QR 5.6 billion in interbank placements as the Bank reduced the high levels of liquidity that it had held at the end of the previous year. Loans and advances to customers were also lower at QR 31.9 billion due to selective new lending during the year and also impacted by the sale of loans and advances of QR 3 billion to the Government of Qatar in June as part of its programme of initiatives to support the banking sector. Financial investments, which included bonds received in consideration for the loans sold, increased by QR 5.0 billion; the Bank has also invested in Government certificates of deposits to improve yield.

In November 2009 the Bank issued US$ 1.0 billion of senior debt and US$ 0.6 billion of subordinated debt through a global bond offer to provide general liquidity, repay a one-year bank loan of US$ 380 million and to strengthen the Bank’s capital position. Following the receipt of these funds, the Bank reduced its reliance on high cost deposits which resulted in customer deposits decreasing by 18% to QR 26.3 billion. The strong market reception to Commercialbank’s global bond offering is a testimony to the strength and resilience of our business and our strategy.

The Bank’s capital adequacy ratio increased to 18.9% at 31 December 2009 compared with 15.7% as at 31 December 2008. The Bank’s capital base was strengthened by the subordinated debt issue and also by the subscription of QR 807 million in February by the Qatar Investment Authority (“QIA”). On 30 December 2009 the Bank received a second subscription of QR 807 million from the QIA which will be used to issue new Ordinary Shares in the capital of the Bank subject to the approval by shareholders; this will increase the QIA’s shareholding in Commercialbank to 9.1%. The Bank’s capital position remains strong and well above the Qatar Central Bank’s minimum required level of 10%.

Commercialbank’s associates National Bank of Oman (NBO) and United Arab Bank (UAB) contributed QR 153 million to the Bank’s results in 2009. The three banks continue to work together to deliver alignment in product offerings. 2009 saw the adoption of Commercialbank’s Sadara proposition at both banks, the extension of Bank’s Islamic offering to UAB and the roll-out of an operational excellence programme alliance-wide to improve customer service and deliver back-office efficiency.  I would like to acknowledge the contribution and commitment of the management and staff at both banks during 2009 in building this regional alliance.

NBO’s net interest income grew by 20% to RO 56.8 million in 2009 reflecting strong, pro-active balance sheet management, however lower fee-related income resulted in operating income declining by 13% to RO 47.1 million.  NBO has seen an increase in its provisions largely as a result of factors relating to the global financial downturn which reduced net profit to RO 26.1 million.

UAB’s total operating income was up by 12% at AED 471 million in 2009 driven by an increase in net interest income to AED 324 million. Net profit increased by 12% to a record AED 281 million from AED 250 million in 2008.

I would like to express our sincere appreciation for the inspirational leadership of His Highness the Emir, Sheikh Hamad bin Khalifa Al Thani and His Highness the Heir Apparent, Sheikh Tamim bin Hamad Al Thani, in guiding Qatar through this difficult economic period; the country has emerged stronger and ready to face future challenges. I would also take this opportunity to thank His Highness the Prime Minister, His Excellency the Minister of Economy & Finance, and His Excellency the Governor of the Central Bank  for their continuous support,  and to thank the Board, the management and staff for their dedication and hard work that has enabled us to manage the challenges posed by the global economic downturn.  We will continue to focus on actively managing risk, capital and liquidity and on creating sustainable shareholder value by broadening and strengthening our long term relationships with customers and we are optimistic about the future growth prospects for our regional banking alliance.

Hussain Ibrahim Alfardan
Managing Director