Qatar: Commercialbank 4th quarter net profit up 33%

Published January 24th, 2010 - 07:58 GMT

Commercialbank (“the Bank”), the largest private sector bank in Qatar, announces its full financial results for the year ended 31 December 2009. The Bank delivered resilient earnings with net profit at QR 1,524 million and increased fourth quarter profits of 33% to QR 186 million compared to the same period in 2008 despite the challenges faced from the global financial downturn.

 

Abdullah Bin Khalifa Al Attiyah, Chairman of the Board of Directors of Commercialbank said, "2009 was a very challenging year for global financial markets but Commercialbank has delivered a resilient set of full year results despite the effects of the financial downturn. The strength of our regional franchise has enabled Commercialbank to absorb the challenges of last year and also re-align the business so that it is better positioned to capture the potential value that recovering markets will offer. The Qatari banking sector was strongly supported during 2009 by the government and the Qatar Central Bank under the visionary leadership of His Highness, the Emir, Sheikh Hamad bin Khalifa Al Thani. This leadership has benefited the Qatari banking sector and the Qatari economy.”

Financial Performance
Mr. Hussein Alfardan, Commercialbank’s Managing Director added, “Our results reflect the pragmatic and prudent approach we have taken in managing the business through the global financial downturn. The Bank is committed to a clear strategy of controlled and sustainable growth, whilst remaining vigilant to the changing economic environment. The strong market reception to Commercialbank’s US$ 1.6 billion global bond offering is a testimony to the strength and resilience of our business and our strategy.  Having successfully managed the challenges of the past year, we will continue to focus on actively managing risk, capital and liquidity and we are confident of the improving growth prospects of our regional banking alliance”.

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 by diversification of its funding sources. These actions led to an increase in net interest income of 30% to QR 1,584 million for the year ended 31 December 2009 compared to 2008. The increase in net interest income was largely offset by lower loan-related fee income which declined to QR 555 million compared to QR 774 million in 2008 reflecting a reduction in credit demand from the private sector and lower investment gains, down QR 239 million, due to reduced asset valuations. Net interest margin improved to 3.4% in 2009, up from 3.0% in 2008 reflecting the tight balance sheet management which has also enabled the Bank to reduce the cost of borrowing to its corporate customers during the second half of the year as liquidity pressures eased.

The Bank continued to manage its costs tightly during 2009 with General and administrative expenses declining by 2.2% to QR 667 million compared with QR 682 million for the year ended 31 December 2008. The decrease was achieved despite an expansion in the retail network which saw higher salary and occupancy costs offset by lower costs for communication, legal, marketing and directors’ fees. Cost management will continue to be a strategic priority in 2010.   Depreciation has increased by QR 25 million to QR 93 million in 2009 principally due to the expansion of the branch network and the establishment of the Bank’s new head office. The cost to income ratio increased slightly to 25.9% compared to 25.2% for 2008.

 

The Bank’s net provisions increased to QR 648 million for the year ended 31 December 2009 compared with QR 524 million in 2008. The Bank took impairment provisions of QR 461 million in 2009 against loans and advances to the customers consisting of net provisions of QR 182 million against the Bank’s retail lending portfolio, the write-off of QR 97 million in the second quarter on the sale of loans and advances and other exposures from the Corporate book to the Government of Qatar and a full provision of QR 170 million against a single relationship default which spans both the retail and corporate book.  The gradual improvement in global markets has resulted in a drop of 61% in impairment losses on the Bank’s investment portfolio with investment provisions declining from QR 465 million in 2008 to QR 182 million in 2009.

The profit for the year ended 31 December 2009 was QR 1,524 million compared with QR 1,702 million for 2008. Net profit for the fourth quarter of 2009 was QR 186 million, 33% higher than the comparative period in 2008.

Total assets reduced by 7% to QR 57.3 billion compared to QR 61.5 billion at the end of 2008 reflecting a reduction of QR 8.7 billion in interbank placements as the Bank reduced the high levels of liquidity that it had held on the balance sheet at the end of the previous year. Loans and advances to customers were 6% lower than 2008 at QR 31.9 billion. The lower level was due to selective new lending during the year, although new lending increased to QR 3.6 billion in the fourth quarter, and also because of the sale of loans and advances and other exposures of QR 3 billion to the Government of Qatar in June 2009 as part of its programme of initiatives to support the banking sector. In consideration for sale of the assets, the Government paid QR 188 million in cash and provided QR 2,855 million in Government bonds. Financial investments, which included these bonds increased by QR 5.0 billion; the Bank has also invested in Government certificate 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 club loan of US$ 380 million and 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 from QR 32.2 billion at the end of the year 2008.

 

The Bank’s capital adequacy ratio increased to 18.9% as at 31 December 2009 compared with 15.7% as at 31 December 2008. The Bank’s capital base was strengthened due to the issuance of QR 2.18 billion of Tier II capital and also by the subscription of QR 807 million on the 17 February 2009 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 of Ordinary Shares in the capital of the Bank; this will increase the QIA’s shareholding in Commercialbank to 9.1%. The second placement is subject to approval by an Extraordinary General Assembly of Commercialbank to be held in February 2010.  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, commented, “2009 was undoubtedly a very tough and challenging year for Commercialbank but the strength of our franchise enabled us to absorb the impact of the global financial downturn and to deliver a resilient performance with net profit of QR 1,524 million for the year. 

“Throughout the course of the year, we have worked hard to manage the challenges that we faced.  We took prudent decisions, made full provisions where required, managed the business conservatively but also took the opportunity to look to the future by re-shaping the business to ensure it is ready to extract full value from the recovery in regional markets. 

“Despite the challenges, we have improved returns across the business, with an increase in our net operating profit to QR 2,778 million. We have increased our net interest income by 30% and improved our net interest margin from 3.0% to 3.4% by proactively managing our balance sheet and in November we undertook a landmark US$ 1.6 billion global bond offer which was substantially oversubscribed.

“We remain focused on building all of core businesses within the domestic market for the long term whilst continuing to consolidate and extract synergies from our regional alliance.  Our strategy will see Commercialbank become an increasingly powerful regional banking presence as we build out a franchise based on customer focused service delivered from a lower cost base.  We are well positioned to capture the growth opportunities in the coming year.” 


Associates

Commercialbank’s associates National Bank of Oman (NBO) and United Arab Bank (UAB), contributed QR 153 million in 2009 compared with QR 208 million for the year ended 31 December 2008. The three banks continue to work together to deliver alignment in product offerings, operational excellence and cost synergies as part of the regional alliance strategy. 2009 saw the adoption of Commercialbank’s Sadara proposition at both NBO and UAB; the extension of Bank’s Islamic offering to UAB; the roll-out of an operational excellence programme alliance-wide to improve customer service and deliver back-office efficiency.

NBO’s net interest income grew by 20% to RO 56.8 million reflecting strong and pro-active balance sheet management, however this increase was offset by lower fee-related income which resulted in operating income declining in 2009 by 7% to RO 47.1 million.  NBO has seen an increase in its provisions for both credit losses and investments to RO 17.1 million largely as a result of factors relating to the global financial downturn. Consequently net profit decreased to RO 26.1 million from RO 45.4 million in 2008.

UAB’s total operating income was up 12% at AED 470 million in 2009 compared with AED 419 million in 2008 driven by an increase in net interest income to AED 324 million from AED 276 million in 2008. Net profit increased by 12% to a record AED 281 million from AED 250 million in 2008 after setting aside a higher provision for loans and advances of AED 34.5 million in 2009.


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