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Commercialbank of Qatar net profit on the rise.

Summary: Strong first quarter performance demonstrating robust year on year growth in challenging market conditions

Commercialbank of Qatar, the largest private sector bank in Qatar, announces its financial results for the first quarter ended 31 March 2009. In challenging financial market conditions Commercialbank achieved a net profit of QR 610 million, an increase of 40% compared with QR 436 million for the first quarter of 2008.

Key financial highlights (compared with first quarter 2008):* Operating income up 46% from QR 571 million to QR 836 million* Net profit increased by 40% to QR 610 million* from QR 436 million* Higher Earnings per share of QR 2.89 up from QR 2.40 * Total assets increased by 30% to QR 63.5 billion from QR 48.8 billion* Customer loans grew 27% to QR 34.8 billion from QR 27.4 billion* Customers' deposits up 8% to QR 30.7 billion from QR 28.4 billion* Shareholders' equity rose by 68% to QR 10.1 billion from QR 6.0 billion

*Net profit of QR 610 million includes QR 165 million profit on sale of property assets.

On his part, 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 PerformanceMr. 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 QR 836 million from QR 571 million in the prior period. The increase in net operating income was largely driven by a 66% increase in net interest income to QR 370 million, whilst loan-related fees reduced in line with lower levels of lending. Despite this, customer loans grew by 27% to QR 34.8 billion compared with QR 27.4 billion 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 QR 57 million compared with QR 3 million in 2008, reflecting, primarily, specific provision against a small number of retail accounts. Total non-performing loans amounted to QR 365 million, representing 1.04% of total loans and advances compared with 0.81% in the first quarter of 2008.

Total costs increased to QR 180 million in the first quarter of 2009 compared with QR 150 million 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 QR 610 million for the first quarter of 2009 compared with QR 436 million for the prior period. The net profit for the quarter ended 31 March 2009 includes a profit of QR 165 million 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 QR 938 million at 31 December 2008. The Government paid QR 418 million in cash and provided a five year bond of QR 520 million which carries a coupon of 5.5% per annum.

Total assets increased by 30% to QR 63.5 billion compared with QR 48.8 billion 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 QR 30.7 billion compared with QR 28.4 billion. 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 LiquidityThe 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 QR 807 million 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 performanceCommercialbank 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 QR 836 million from the fourth quarter income figure of QR 627 million. Net profit increased from QR 140 million for the fourth quarter 2008 to QR 610 million.

Lending to customers grew by 2.8% to QR 34.8 billion from QR 33.9 billion 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 QR 63.5 billion from QR 61.3 billion. Customers' deposits reduced by 4.7% to QR 30.7 billion from QR 32.2 billion in line with the contraction of the overall deposit market during the period.

Business PerformanceCommenting 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 BankingCorporate Banking showed good growth with a 24% increase in net operating income to QR 476 million from QR 384 million. Loans increased by 22% to QR 26.6 billion, with deposits growing by 3% to QR 20 billion. Both domestically and internationally, Corporate Banking continued to grow its business by lending selectively, with a strong focus on risk management and profitability.

Retail BankingRetail Banking's net operating income declined from QR 157 million to QR 146 million in 2009 mainly due to a one-off gain of QR 18 million arising from sale of shares in Visa International in 2008. Loans grew by 19% to QR 5.4 billion year on year, with deposits increasing by 3% to QR 7.3 billion. The first quarter of 2009 has reflected a cautious approach to lending in the current market conditions.

Al Safa Islamic BankingAl 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 QR 28 million year on year. Asset growth was driven selectively and derived mainly from the corporate sector, with loans more than doubling to QR 2.7 billion from QR 1.1 billion in the first quarter of 2008. Customers' deposits grew to QR 3.4 billion from QR 1.9 billion in the prior year.

AffiliatesCommercialbank's affiliates, National Bank of Oman (NBO) and United Arab Bank (UAB), contributed QR 39 million to Commercialbank's net profit in the first quarter of 2009 compared with QR 47 million for the first quarter of 2008.

NBO's net profit of OR 7.3 million for the first quarter of 2009 compared with OR 10.9 million 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 AED 66 million from AED 55 million 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.

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Publication:Mena Report
Date:Apr 20, 2009
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