Commercial Bank of Qatar announces financial results for the nine months ended 30 September 2009

The Bank delivered stable earnings performance in the first nine months of 2009 with net profit at QR1.34bn.

Key financial highlights

• Net operating income up 2% to QR2,181m
• Net interest income up 35% to QR1,190m
• Net profit at QR1,338m
• Earnings per share of QR6.23
• Customer loans and advances at QR31.5bn
• Customers deposits at QR 30.6 billion
• Shareholders' equity increased to QR10.9bn.

His Excellency, Abdulla Bin Khalifa Al Attiyah, Chairman of the Board of Directors of the Bank, said:

"Over the course of the last nine months, Commercialbank has succeeded in delivering stable earnings for our shareholders. We are confident about the improving growth prospects of the Qatari market and remain optimistic about near term prospects, as the local and regional economies show signs of improvement. We are grateful to the Government of Qatar and the Qatar Central Bank for their continued support of the banking sector."

Financial Performance

Mr. Hussein Alfardan, Commercialbank's Managing Director added, "Our results for the nine months reflect the pragmatic and prudent approach we have taken in managing the business through the effects of the global financial crisis. The Bank is committed to a clear strategy of controlled and sustainable growth, whilst remaining vigilant to the changing economic environment. We continue to focus on creating sustainable shareholder value by broadening and strengthening our long term relationships with our customers."

Net operating income for the nine months ended 30 September 2009 was up 2% to QR2.18bn. The Bank has continued to be proactive in the management of its balance sheet by improving yields on certain asset classes and by diversifying its funding sources through a reduction in the level of high cost deposits. These actions led to an increase in net interest income to QR1.19bn from QR0.9bn in the nine month period to 30 September 2008. As a result, net interest margin continued its improvement to 3.31% from 3.24% reported at 30 June 2009 and from 3.04% at 30 September 2008 and was achieved despite reducing the cost of borrowing to the Bank's corporate customers for a second time within three months. The increase in net interest income was, however, largely offset by lower fee income from borrowing and lower investment gains reflecting a reduction in credit demand from the private sector in Qatar and reduced asset valuations.

Loans and advances to customers were QR31.5bn, 2% lower than the QR32.1bn reported at 30 September 2008. New lending was QR1.8bn during the three months ended 30 September 2009, this was offset, however, by repayments, including some early settlements, of QR3.3bn. The new lending activity helped generate an 11% increase in fee and commission income in the third quarter compared with the second quarter of 2009. The lower level of loans and advances also reflects the sale of loans amounting to QR3,043m to the Government of Qatar in the second quarter of 2009.

General and administrative expenses increased by 8% to QR484m compared with QR447m in the first nine months of 2008. The rise in expenses was predominantly due to the investment in personnel by the Bank in 2008 to grow its business. The tight management of costs saw general and administrative expenses cut by 4% in the third quarter of 2009 from the second quarter. Depreciation increased by QR18m to QR76m principally as a result of the expansion of the Bank's branch network and the establishment of the Bank's new head office. The cost to income ratio increased marginally to 24.4% from 22.0% in the same period last year but has reduced from 27.7% in the second quarter to 25.8%.
The Bank's net provisions increased to QR397m compared with QR230m in the first nine months of 2008.

The increase in provisions was, mainly, a consequence of factors arising from the global financial crisis including the widespread reduction in international equity values which has resulted in an impairment loss of QR108m against the Bank's investment portfolio. In addition, the Bank has taken impairment provisions of QR289m against loans and advances to customers. These impairments consist of net provisions of QR138m against the retail lending portfolio (net retail provisions declined in the third quarter by 22% compared with the second quarter), the write-off in the second quarter of QR97m on the sale of loans and advances and other exposures from the corporate book to the Government of Qatar and a provision of QR50m in the third quarter of 2009, against a single corporate default.

The net profit for the nine months ended 30 September 2009 was QR1.34bn compared with QR1.56bn in the same period for 2008. Net profit increased by 18% to QR394m for the three months to 30 September 2009 compared with QR333m in the second quarter of 2009.

Total assets stood at QR56.4bn as at 30 September 2009 compared with QR57.8bn in 2008. The lower level of total assets reflects a decrease of QR0.6bn in customer lending and a reduction of QR7.5bn in interbank placements, partially offset by an increase of QR3.9bn in financial investments related to Qatari Government bonds and certificate of deposits. Customer deposits increased by 3% to QR30.6bn from QR29.9bn at the end of the same period in 2008 reflecting a focused drive to raise low cost deposits from the branch network.

The Bank's capital adequacy ratio was 16.5% at 30 September 2009 compared with 15.7% as at 30 September 2008. With market conditions starting to improve, the Bank's capital position will continue to be carefully managed and will be maintained above the Qatar Central Bank's minimum required level of 10%.

The Qatar Investment Authority (QIA) completed the first stage of its subscription process in January by investing QR807m in the Bank 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%.

Andrew Stevens, Commercialbank's Group Chief Executive Officer, commented, "Commercialbank has continued to be profitable growing its net operating income despite challenging market conditions. We have improved our net interest margin through proactive management of the balance sheet by reducing funding costs and focusing on improvement in the yields on our assets."

"The Bank's conservative approach to lending coupled with the cyclical slowdown of credit demand in the economy has resulted in a moderate reduction in our loan portfolio during the year and in lower fee income. The impact of the global financial crisis has necessitated further impairment provisions on both our international investment portfolio and against our lending book. We have been reviewing the Bank's organization to ensure that we have taken appropriate action to position the business to take advantage of the improvements in both local and regional economies whilst, at the same time, managing our capital position and reducing the costs of our operation. We are beginning to see the first signs of improvement in our business segments and are optimistic going forward," he added.

Associates

The Bank's associates continued to make a solid contribution to the Bank's overall performance, albeit at a reduced level, and remain a key area of the Bank's diversification strategy. National Bank of Oman (NBO) and United Arab Bank (UAB), contributed QR113m in the nine months to 30 September 2009 compared with QR155m for the same period in 2008.

National Bank of Oman

NBO has delivered a solid earnings performance in the nine months to 30 September 2009 with net profit at OR19.6m.

Proactive balance sheet management resulted in an increase in net interest income of 22% to OR42.4m and an improvement in net interest spreads to 3.18% from 3.09% for the nine months ended 30 September 2008. Loans and advances to customers grew to OR1.38bn, up by 12% compared with OR1.23bn at 30 September 2008.

Operating expenses continued to be tightly managed and increased by only 5% to OR25.8m despite NBO opening 9 new branches and 23 new ATMs in the current year. The cost income ratio increased marginally to 42% from 40% in 2008.

The credit quality of NBO's corporate and retail portfolios remained stable with non-performing loans amounting to OR70m, 100% covered by provisions. NBO's net provisions for credit losses and investments were OR12.8m in 2009 compared with a net recovery of OR2.6m in the nine months ended 30 September 2008. The increase in provisions is largely as a result of factors relating to the global financial crisis and consists of an impairment loss against the investment portfolio of OR3.1m, a higher gross provision against the lending portfolio of OR10.4m and a provision against specific interbank exposures of OR4.0m.

NBO is making good progress in realigning its business strategies, risk management processes and customer value proposition as part of Commercialbank's collaborative strategy.

United Arab Bank

UAB has maintained its earnings momentum and recorded net profit growth of 12% to Dhs204m for the nine months ended 30 September 2009 compared with Dhs182m achieved during the same period last year. Net operating income was Dhs350m for the nine months ended 30 September 2009 compared with Dhs307m due, primarily, to a strong focus on balance sheet management and a prudent approach to new lending.

UAB has maintained steady and solid growth in its operations and financial performance during 2009. UAB intends to maintain this conservative approach and has plans to expand its business in niche retail segments, namely Islamic financing services and wealth management, by leveraging its strong relationship with Commercialbank.