Commercial Bank of Qatar

Financial Results for the quarter ended 31 March 2010

Commercialbank delivered net profit of QR 410 million for the first quarter

Monday 19 April 2010, Doha, Qatar: Commercial Bank of Qatar (“Commercialbank” or “the Bank”), the largest private sector bank in Qatar, announces its financial results for the quarter ended 31 March 2010. The Bank delivered solid earnings with net profit of QR 410 million, up from QR 186 million in the fourth quarter of 2009, and slightly higher than the net profit achieved in the first quarter of 2009 before the exceptional gain of QR 165 million arising on the sale of real estate assets and the dividend income of QR 43 million from the Qatar equities sold to the Government during 2009.

Key financial highlights

• Net interest income of QR 389 million
• Net profit at QR 410 million
• Earnings per share of QR 1.84
• Customer loans and advances at QR 31.6 billion
• Customers deposits at QR 28.8 billion

His Excellency, Abdullah Bin Khalifa Al Attiya, Chairman of the Board of Directors of Commercialbank said, “As the global economies move tentatively out of recession, the Qatar economy is forecast to grow strongly this year supported by the Government and its announcement of a record budget. Commercialbank has positioned itself to capture greater value from the projected growth of the economy with our first quarter results affirming the actions taken last year to realign the business to meet the challenges that we faced from the economic downturn.  We remain optimistic about the future growth of Commercialbank”.

Financial Performance

Mr. Hussain Al Fardan, Commercialbank’s Managing Director commented on the first quarter’s financial performance, “Commercialbank has made a good start to the year. The underlying performance has benefitted from the revised risk based strategy that we implemented across all areas of our business during 2009. Commercialbank’s focus for this year will be on deepening its presence in domestic markets whilst developing synergies across the regional franchise, a strategy that will deliver long term value to our customers and shareholders.”

Net operating income for the first quarter of 2010 was QR 618 million compared with QR 836 million for the first quarter of 2009, but up 4% against the fourth quarter of 2009. Year on year performance was flat before the exceptional gain of QR 165 million arising from the sale of real estate assets and the dividend income of QR 43 million from the Qatar equities sold to the Government of Qatar during the first quarter of 2009. 

Net interest income was up 5% to QR 389 million in the first quarter of 2010 compared with QR 370 million in 2009. The Bank’s continued focus on strong balance sheet management has delivered improvement in its net interest margin to 3.7% in the first quarter from 3.4% for the full year 2009.  The increase in net interest income was offset by lower fee and commission income, dividend income and the gain on sale of real estate assets in 2009.  Net fee and commission income declined to QR 163 million in 2010 compared to QR 195 million in the first quarter of 2009 due to lower trade service, ancillary and loan fees. However total non-interest income was up 14% to QR 229 million in 2010 compared with the fourth quarter of 2009 due, mainly, to higher loan fee income.

The Bank has continued to control costs tightly with total operating expenses increasing to QR 196 million from QR 180 million in the first quarter of 2009.  Whilst staff costs were slightly lower, general and administration expenses were up QR 14 million reflecting higher marketing and occupancy costs. Depreciation has also increased and relates to the expansion of the branch network to improve local service capability to its customers.  These factors combined with the lower revenues in the first quarter of 2010 have resulted in an increase in the cost to income ratio to 30.6% in the first quarter of 2010.

The Bank’s net provisions for loans and advances reduced to QR 12 million in the first quarter of 2010 from QR 57 million in the same quarter of 2009. The non-performing loan ratio has increased slightly from 2.22% at the end of 2009 to 2.43% at 31 March 2010 due to new Retail banking and Islamic banking provisions, the impact of interest being suspended on fully provided loans and a small reduction in aggregate loans and advances to customers.  The continuing improvement in global markets has resulted in a reduction in impairment losses on the Bank’s investment portfolio with investment provisions declining to QR 22 million in the quarter ended 31 March 2010 from QR 28 million in first quarter of 2009.

Total assets reduced by 13% to QR 55.5 billion at 31 March 2010 compared to QR 63.5 billion at the end of the first quarter in 2009 reflecting, mainly, a reduction of QR 7.4 billion in interbank placements as the Bank has reduced, and tightened, its levels of liquidity over the last fifteen months.  Loans and advances to customers were QR 31.6 billion at 31 March 2010, a small reduction compared with the end of December 2009, and lower than the end of the first quarter in 2009 due to lower levels of new business lending during 2009 and the sale of loans and advances and other exposures of QR 3 billion to the Government in June 2009.

Financial investments have increased to QR 9.8 billion at 31 March 2010 compared with QR 5.8 billion in 2009 due, mainly, to the government bonds received in exchange for the loans and advances sold to the Government combined with the Bank’s investment in Government certificates of deposits which are purchased to improve yield.

Customers’ deposits were QR 28.8 billion at 31 March 2010, QR 2.5 billion higher than the end of December 2009 but QR 1.9 billion lower than at the end of March 2009. During the first quarter the Bank has taken the opportunity to increase its deposit base whilst deposit rates have softened as part of its overall balance sheet management.

The Bank’s capital adequacy ratio was 19.1% as at 31 March 2010 compared to 15.5% at the end of the first quarter in 2009 and 18.9% at the end of 2009. On 30 December 2009 the Bank received a second subscription of QR 807 million from Qatar Holding (QH), a subsidiary of the Qatar Investment Authority, and at an Extraordinary General Assembly of the Bank held on 9 February 2010 shareholders gave approval to issue 10,310,265 new ordinary shares to QH which increases its 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%.

Andrew Stevens Commercialbank’s Group Chief Executive Officer said, “Commercialbank made a solid start to the year with the business benefiting from the actions taken to counter and adapt to last year’s severe market conditions. We are seeing improving trends across the business and expect to see a strong and sustainable improvement in market conditions.  However for the time being we will continue to manage the business on a conservative basis.

The private sector demand for lending continues to be slow and dominated by real estate but we have seen growth in the public sector which will, in time, stimulate opportunities in the private sector. With the opportunities offered by the public sector, particularly infrastructure projects, the Bank will be focusing on this market and on the education and healthcare sectors during the year.

Our refocused strategy is bearing fruit and our first quarter’s performance validates our realigned business approach.  We will continue to build all of our core businesses within their domestic markets, as well as developing cross border synergies with our associates in the regional alliance. United Arab Bank has already expanded the use of Commercialbank’s Islamic banking platform to introduce new products and National Bank of Oman is preparing to launch a credit card acquiring business using Commercialbank’s processing platform.”

Associates

Commercialbank’s associates National Bank of Oman (NBO) and United Arab Bank (UAB) contributed QR 21 million to the Bank’s net profit in the first quarter of 2010 compared with QR 39 million for the quarter ended 31 March 2009.  The lower contribution in 2010 was mainly due to an adjustment of RO 5 million in provision levels in NBO’s 2009 financial results following a recommendation from the Central Bank of Oman which Commercialbank has included in its first quarter results. The impact for Commercialbank was a QR 17 million reduction in net profit.

In the first quarter of 2010 NBO has continued to deliver solid earnings performance and achieved a net profit after tax of RO 6.6 million compared to RO 7.3 million for the same period in 2009, but up by RO 5.0 million compared with the fourth quarter of 2009.  NBO grew its net interest income by 4% to RO 13.7 million from RO 13.1 million in the prior year period through focused balance sheet management whilst net interest spread increased slightly to 3.25%.  Loans and advances were up 1% to RO 1.38 billion with deposits increasing by 9% to RO 1.37 billion compared with the end of December 2009.

NBO’s non-performing loan ratio improved to 4.2% from 4.3% at 31 December 2009 and its coverage ratio increased to 100% from 95% over the same period. 

In the near-term NBO will focus on maintaining steady and consistent progress with continued selective growth in lending.

UAB recorded a net profit of AED 65.5 million for the quarter ended 31 March 2010 which was in line with the profit achieved during the same period last year. UAB has increased its net interest income by 1% and its net fees and commission by 11% despite a reduction in loans and advances to customers of AED 108 million to AED 4.7 billion at 31 March 2010.  The increase in net interest income resulted from an improvement in the net interest spread to 4.7% for the current quarter from 3.8% in the first quarter of 2009.

UAB’s operating expenses decreased by 1% to AED 39 million at the same time as a new branch and two Islamic banking windows were opened during the first quarter of 2010. Provision for credit losses reduced 13% to AED 9.5 million compared to AED 11.0 million in the quarter ended 31 March 2009.

Going forward UAB will continue to maintain its conservative approach whilst expanding its business in niche retail segments such as Islamic financial services and Wealth Management.