Commercialbank of Qatar announces first quarter 2009 financial results

In challenging financial market conditions Commercialbank achieved a net profit of QR610m, an increase of 40% compared with QR436m for the first quarter of 2008.

His Excellency, Abdullah Bin Khalifa Al Attiyah, Chairman of the Board of Directors of Commercialbank said

"In a challenging trading environment, Commercialbank has delivered a strong set of financial results for the first quarter of the year. Risk management is embedded at the centre of our business strategy and it has enabled the Bank to position itself appropriately for what will be another challenging year in local and regional banking markets. Encouraged by the resilience of the Qatar economy, together with the Government support for the banking industry, we remain positive about future growth opportunities for Commercialbank."

Financial Performance

Mr. Hussein Alfardan, Commercialbank's Managing Director commented on the first quarter's financial performance, "Commercialbank has made a good start to the year. The strong underlying performance of the Bank during the first quarter is testament to the strength of its core businesses and to the proactive management of risk, liquidity and capital."

"These key fundamentals of banking will be our main focus for the rest of the year whilst continuing to improve quality of service to our customers."

Net operating income for the first quarter of 2009 rose by 46% to QR836m from QR571m in the prior period. The increase in net operating income was largely driven by a 66% increase in net interest income to QR370m, whilst loan-related fees reduced in line with lower levels of lending.

Despite this, customer loans grew by 27% to QR34.8bn compared with QR27.4bn at the end of the first quarter in 2008. The Bank's net interest margin improved to 3.16% in the first quarter of 2009 from 2.74% in the same period in 2008 due to careful management of the Bank's funding sources.

Commercialbank's loan portfolio continued to be well diversified and of good quality. The Bank's net provision for loans and advances increased to QR57m compared with QR3m in 2008, reflecting, primarily, specific provision against a small number of retail accounts. Total non-performing loans amounted to QR365m, representing 1.04% of total loans and advances compared with 0.81% in the first quarter of 2008.

Total costs increased to QR180m in the first quarter of 2009 compared with QR150m for the prior period. The increase in costs was driven mainly by staff related expenses, with higher headcount than the comparative quarter in 2008, reflecting growth in the business, and by depreciation of the Commercialbank Plaza building in 2009.

The cost to income ratio was 20.6% for the first quarter compared with 24.4% in 2008. Cost will be an ongoing focus for the Bank throughout 2009.
Net profit increased by 40% to QR610m for the first quarter of 2009 compared with QR436m for the prior period. The net profit for the quarter ended 31 March 2009 includes a profit of QR165m arising from the completion of the sale of property assets.

During the first quarter, Commercialbank decided to take up the Government of Qatar's offer to buy its Qatar equity investment portfolio, as part of the Government's proactive initiative to support the Qatari banking sector. On 22 March 2009, Commercialbank sold its entire portfolio of Qatar equities which had a net book value of QR938m at 31 December 2008. The Government paid QR418m in cash and provided a five year bond of QR520m which carries a coupon of 5.5% per annum.

Total assets increased by 30% to QR63.5bn compared with QR48.8bn at the end of the first quarter in 2008 which reflected higher customer lending and also an increase in cash and inter-bank placements. Customers' deposits grew by 8% to QR30.7bn compared with QR28.4bn. Whilst the market for customer deposits continued to be competitive, Commercialbank has been successful in leveraging its strong, long-standing relationships to attract and retain deposits.

Capital Base and Liquidity

The capital base was strengthened significantly during 2008 and the Bank has continued to maintain a strong capital position in 2009 to support controlled asset growth. During the first quarter of 2009, the Qatar Investment Authority (QIA) completed the first stage of the subscription process in the Bank's share capital by investing QR807m which represented 5% of the Bank's share capital. The second stage of the QIA subscription is expected to take place in December 2009 at the same rate of 5%.

The Bank's capital adequacy ratio was at 15.5% (Q1 2008:13.7%) compared with 15.7% at 31 December 2008 against the Qatar Central Bank's requirement of 10%.

In the ongoing difficult market conditions, the Bank continued to review and test its liquidity position during the quarter to ensure that appropriate contingency plans for market conditions were in place.

First quarter 2009 v fourth quarter 2008 performance

Commercialbank delivered a strong financial performance quarter on quarter, as the Bank pursued controlled growth of its balance sheet focusing on risk, funding and costs whilst maintaining its commercial flexibility. Operating income improved by 33% to QR836m from the fourth quarter income figure of QR627m. Net profit increased from QR140m for the fourth quarter 2008 to QR610m.

Lending to customers grew by 2.8% to QR34.8bn from QR33.9bn reflecting the Bank's strategy to grow its balance sheet selectively by focusing on new high quality lending and in meeting its undrawn commitments to existing customers. As a result, total assets increased by 3.6% to QR63.5bn from QR61.3bn. Customers' deposits reduced by 4.7% to QR30.7bn from QR32.2bn in line with the contraction of the overall deposit market during the period.

Business Performance

Commenting on the performance of the business, Andrew Stevens, Commercialbank's Group Chief Executive Officer, said, "The sustainable growth in our core businesses has enabled the Bank to deliver a healthy set of results despite the current global environment. We remain focused on building all of our core businesses within the domestic market for the long term whilst continuing to consolidate and extract synergies from our regional presence. Our outlook going forward remains cautiously optimistic given the performance of our businesses and feedback from our customers."

Corporate Banking

Corporate Banking showed good growth with a 24% increase in net operating income to QR476m from QR384m. Loans increased by 22% to QR26.6bn, with deposits growing by 3% to QR20bn. Both domestically and internationally, Corporate Banking continued to grow its business by lending selectively, with a strong focus on risk management and profitability.

Retail Banking

Retail Banking's net operating income declined from QR157m to QR146m in 2009 mainly due to a one-off gain of QR18m arising from sale of shares in Visa International in 2008. Loans grew by 19% to QR5.4bn year on year, with deposits increasing by 3% to QR7.3bn. The first quarter of 2009 has reflected a cautious approach to lending in the current market conditions.

Al Safa Islamic Banking

Al Safa Islamic banking continued to grow across all of its lines of business by focusing on expansion of its client relationships. Net profit increased by 57% to QR28m year on year. Asset growth was driven selectively and derived mainly from the corporate sector, with loans more than doubling to QR2.7bn from QR1.1bn in the first quarter of 2008. Customers' deposits grew to QR3.4bn from QR1.9bn in the prior year.

Affiliates

Commercialbank's affiliates, National Bank of Oman (NBO) and United Arab Bank (UAB), contributed QR39m to Commercialbank's net profit in the first quarter of 2009 compared with QR47m for the first quarter of 2008.

NBO's net profit of OR7.3m for the first quarter of 2009 compared with OR10.9m for 2008 mainly due to lower investment income and provisions required on impairment of investments.

UAB recorded good growth and improved profitability for the period with net profit rising to Dhs66m from Dhs55m for the first quarter 2008 mainly due to increased revenue from lending activities.

In line with the Group's collaborative strategy, implemented across its affiliates, NBO and UAB continued to make good progress in aligning business strategies, risk management practices and customer value propositions.