The Commercial Bank of Qatar (Q.S.C.) Annual Report 2008 Annual

Transcription

The Commercial Bank
of Qatar (Q.S.C.)
Annual Report
2008
Annual Report 2008
True inspiration simply
requires commitment to a country, to its
leadership, to its people
and to the future.
Because Qatar is our
home.
His Highness
Sheikh Tamim bin Hamad Al Thani
Heir Apparent
His Highness
Sheikh Hamad bin Khalifa Al Thani
Emir of the State of Qatar
The Commercial Bank of Qatar (Q.S.C.)
Commercialbank Plaza, PO Box 3232
Doha, State of Qatar
Telephone: +974 449 0000
Facsimile: +974 449 8182
Telex: 4351 TEJARI DH
www.cbq.com.qa
Chairman’s report
4
Board of Directors
6
Financial highlights
7
Managing Director’s report
8
Management review
11
Corporate governance
23
Report of the Auditors
29
Shari’ah Report - Al Safa Islamic Banking
30
Consolidated Balance Sheet
32
Consolidated Statement of Income
33
Consolidated Statement of Changes in Shareholders’ Equity
34
Consolidated Statement of Cash Flows
36
Notes to the Consolidated Financial Statements
37
L i v i n g
h e r e
w i th
y o u
Chairman’s report
4
On behalf of the Board of Directors, it
gives me great pleasure to present the
Annual Report for Commercialbank for
the year ended 31 December 2008.
Qatar continues to enjoy strong economic
conditions under the visionary leadership
of His Highness the Emir, Sheikh Hamad
bin Khalifa Al Thani which has enabled
Commercialbank to deliver another year of
growth and robust earnings performance.
Despite challenging conditions, the overall
strength of our core earnings continues to
allow us to generate sustainable dividends
for shareholders. The Bank achieved
a record net profit of QR 1.7 billion
representing a 22% increase over 2007 and
enabled earnings per share to increase from
QR 7.63 in 2007 to QR 8.76 in 2008.
We have worked closely with our associate
banks, National Bank of Oman (NBO)
and United Arab Bank (UAB), to develop
synergies and business initiatives, extending
best practices and preparing the ground
to leverage further opportunities from our
alliance. Both NBO and UAB have delivered
improved growth and profitability in 2008
and, combined, have contributed over 12%
to the Group’s profit.
We continued our progress as a player
in the international capital markets by
becoming, in July, the first Qatar company
to list its shares, in the form of Global
Depositary Receipts, on the London Stock
Exchange. The listing, together with a
separate rights issue and private placement,
enabled the Bank to raise QR 3.2 billion.
The increase, which strengthened the
Bank’s capital position, provided a clear
indication of shareholders’ support that
is duly acknowledged by the Board. In
recognition of shareholders’ commitment
and the Bank’s strong performance this
year, the Board paid a cash dividend of 70%
(or QR 7.00 per share) for the year 2008.
As the global financial crisis deepened, His
Highness the Prime Minister announced in
October 2008 that the Qatar Investment
Authority would subscribe between 10
and 20 per cent of new capital to all Qatar
banks listed on the Doha Securities Market;
the first subscription equivalent to 5 per
cent of paid-up capital was received by
Commercialbank on 21 January 2009. This
initiative by the Government will ensure that
Commercialbank continues to maintain a
well-capitalized position.
The banking sector remains central to the
ongoing development, diversification and
expansion of the infrastructure for the Qatar
economy. Commercialbank has played
a major part in Qatar’s development for
more than 30 years and our commitment
to remaining at the heart of future
development is stronger than ever. Inspired
by Qatar, I believe that the Bank can look
forward to continued growth in the years
ahead.
A further milestone of progress was
achieved towards the end of 2008
with the Bank’s head office moving
from Grand Hamad Avenue to the new
Commercialbank Plaza in the West Bay area.
This magnificent glass edifice, a 22 storey
landmark on the Doha skyline, reflects our
commitment to the community that we
have served since 1975 and our core values
of clarity, openness and transparency.
In conclusion, and on behalf of the Board
of Directors, I would like to express our
sincere appreciation for the guidance and
support received from His Highness the
Emir, His Highness the Heir Apparent, His
Highness the Prime Minister, His Excellency
the Minister of Finance and his Excellency
the Governor of the Qatar Central Bank. I
also wish to acknowledge our customers’
continued trust and confidence in the
Bank and the hard work, dedication and
loyalty of our employees. It is due to their
commitment and vigilance, particularly
in these difficult financial times, that
Commercialbank continues to make good
progress.
Abdullah bin Khalifa Al Attiyah
Chairman
5
Abdullah bin Khalifa Al Attiyah
Chairman
Board of Directors
6
Seated from left:
Sh. Abdullah bin Ali bin Jabor Al Thani - Vice Chairman
Mr. Hussain Ibrahim Alfardan - Managing Director
H.E. Abdullah bin Khalifa Al Attiyah - Chairman
Sh. Nasser bin Faleh Al Thani - Director
Mr. Jassim Mohammed Jabor Al Mosallam - Director
Standing from left:
Mr. Omar Hussain Alfardan - Director
Mr. Khalifa Abdullah Al Subaey - Director
Mr. Andrew Stevens - Group Chief Executive Officer
Sh. Jabor bin Ali bin Jabor Al Thani - Director
Mr. Abdullah Mohammed Ibrahim Al Mannai - Director
Financial highlights
Profit & Loss highlights – Full Year 2008
7
Operating income up 42.5% from QR 1.9 billion to QR 2.8 billion
Net profit increased by 22.4% to QR 1.7 billion
Earnings per share of QR 8.76 up from QR 7.63 in 2007
Dividend proposed of QR 7 per share
Balance sheet highlights - At 31 December 2008
Total assets increased by 35.0% to QR 61.3 billion
Customer loans grew by 35.5% to QR 33.9 billion
Customers’ deposits were up 24.9% to QR 32.2 billion
Shareholders’ equity rose by QR 3.8 billion to QR 10.0 billion
Net Profit
Loans & Advances
1,702
08
07
06
05
04
1,391
863
750
CAGR 2004 - 2008: 49%
346
0
500
Millions ( QR )
1,000
1,500
2,000
25,021
17,360
10,884
0
Total Assets
10,000
15,000
20,000
25,000
30,000
35,000
30,358
22,182
CAGR 2004 - 2008: 48%
12,940
10,000
20,000
30,000
40,000
50,000
60,000
32,186
08
07
06
05
04
45,397
70,000
Millions ( QR )
25,766
17,188
13,235
0
Shareholders’ Equity
9,978
2,620
2,000
4,000
6,228
5,631
5,677
CAGR 2004 - 2008: 40%
6,000
8,000
10,000
CAGR 2004 - 2008: 40%
8,304
5,000
Millions ( QR )
08
07
06
05
04
0
5,000
Customers’ Deposits
61,302
Millions ( QR )
CAGR 2004 - 2008: 50%
6,714
Millions ( QR )
08
07
06
05
04
0
33,898
08
07
06
05
04
12,000
10,000
15,000
20,000
25,000
30,000
35,000
Managing Director’s report
8
Commercialbank achieved a record
level of profit in 2008, an achievement
of which we are extremely proud
considering the adverse economic
climate, particularly in the fourth
quarter. The strong underlying
performance is testament to the
strength of the Bank’s core business
and the benefits derived from the
regional banking alliance.
The Bank’s net profit for 2008 was QR 1.7
billion, an increase of 22.4% compared
to the year ended 31 December 2007.
Net profit was, however, impacted by the
global financial crisis and the need to take
provisions of QR 465 million for impairment
on the investment portfolio. Earnings per
share grew to QR 8.76 for the full year
compared to QR 7.63 in 2007.
Net operating income for the year was QR
2.8 billion, up 42.5% year on year driven
predominantly by higher net interest
income which was up QR 341 million, and
by increased loan-related fee income of QR
943 million, QR 277 million higher than in
2007. The Net interest margin improved
from 2.9% in 2007 to 3.0% in 2008.
Ongoing expansion in the private sector
in Qatar and continuing credit demand
resulted in a 35.5% year on year growth
in loans and advances to QR 33.9 billion
whilst financing provided by Al Safa Islamic
Banking also increased to QR 2.4 billion, up
163%, from QR 0.9 billion in 2007.
Total assets stood at QR 61.3 billion, an
increase of 35% compared to the end of
2007, due to growth in lending to customers
as well as an increase of QR 5.3 billion to QR
14.3 billion in the amount due from banks
and financial institutions, reflecting the high
level of liquidity held by the Bank during the
last quarter of the year.
Customers’ deposits reached QR 32.2 billion,
a 24.9% increase from the end of 2007
due mainly to higher levels of time deposits
raised from the Government and Retail
sectors.
Commercialbank’s capital adequacy ratio
was 15.7% at the end of 2008 compared to
the 10% required by the Central Bank and
well above the requirements of Basel II. QR
3.2 billion of new capital was raised during
the year which considerably improved the
capital position of the Bank. After the end
of the year, the Qatar Investment Authority
subscribed 5% of paid-up capital to the
Bank which further strengthened the Bank’s
capital position.
The National Bank of Oman, in which
Commercialbank has a 35% shareholding,
continued its improving financial
performance and delivered a record net
profit of RO 45.4 million. NBO’s operating
profit for 2008 increased by 49.0% to RO
54.3 million compared to RO 36.4 million for
the prior year.
The Bank’s results showed continued growth
momentum across all business lines as well
as increased productivity which saw an
improvement in the cost to income ratio to
38.4% in 2008 from 44.0% in 2007. Net
Loans and advances increased by RO 494
million to RO 1.4 billion and deposits were
up by RO 406 million to RO 1.3 billion. Asset
quality continued to improve with nonperforming loans being reduced to 3.5% of
total loans, 100% of which are covered by
provisions.
Commercialbank completed its purchase
of United Arab Bank in January 2008 by
increasing its stake from 35% to 40%. UAB
produced a strong net profit in 2008 and an
improvement on the previous year. Loans
and advances increased by nearly 40%
compared to the end of 2007 and deposits
were also up by approximately 20%.
I would like to take this opportunity to
thank the management and staff at both
of our associates for their hard work and
efforts over the past year. Commercialbank
is looking forward to extending its close
working relationship with both banks
during 2009 and to developing synergies
and opportunities which will continue to
enhance the performance of all three banks.
Commercialbank continued to focus on
delivery of high quality products and
services during 2008 through investment in
staff and in expanding its branch and ATM
networks thus providing easier access to
its banking facilities for customers in more
locations; further network expansion in
2009 will move the Bank even closer to its
customers. Al Safa Islamic Banking activities
also continued to expand in both the retail
and corporate sectors.
The fourth quarter of 2008 was a difficult
time for financial institutions worldwide.
The Bank’s financial, operational and
risk controls, corporate governance and
contingency plans were all tested, as was
the Board, management and staff, in
the most extreme market circumstances
that were unprecedented in the history
of Commercialbank. I am proud that
the Bank has come through this difficult
period stronger and more focused than
ever and I would like to thank my Board,
the management and staff for their
extraordinary efforts during 2008 and
especially during the final part of the year.
Inspired by the leadership of His Highness
the Emir, Sheikh Hamad bin Khalifa Al
Thani, Qatar continues to grow and thrive
and Commercialbank is proud to be a
fundamental part of that growth. Our
focus for the year ahead remains on actively
managing risk, capital and liquidity while
continuing to strengthen our traditional
relationships with all of Qatar’s various
communities. Incremental business and cost
synergies derived from our regional alliance
will support further growth and progress
going forward.
Hussain Ibrahim Alfardan
Managing Director
9
Hussain Ibrahim Alfardan
Managing Director
10
Commercialbank has
again demonstrated
its proven ability to
deliver robust earnings
performance whilst
continuing to focus on
proactive management
of risk, liquidity
and capital.
Andrew C. Stevens
Group Chief Executive Officer
Management review
In market conditions that changed from favourable to extremely
challenging during 2008, the Board of Directors, supported by
our experienced management team, guided Commercialbank
through a difficult year to deliver record performance.
Commercialbank achieved a record net profit of QR 1,702 million in
2008, despite the challenges seen in the global financial markets,
driven by sustainable growth in its core businesses. Our associate
banks, National Bank of Oman and United Arab Bank, also achieved
record performance levels despite the difficult conditions and
provided strong returns on the investment that the Bank has made in
them.
Commercialbank, the leading private sector and second largest
commercial bank in Qatar, again demonstrated its proven ability to
deliver robust earnings performance whilst continuing to focus on
proactive management of risk, liquidity and capital. Continued focus
on these three key banking fundamentals ensures that the Bank is
well-positioned to face the tough challenges that lie in the years
ahead, and which has underpinned the Bank’s strong external credit
ratings. The latter reflect the balance maintained between earnings
growth, effective risk management and capital strength.
In November 2008 the Bank moved its head office to the new
Commercialbank Plaza in the West Bay area. This magnificent,
modern building symbolises the forward looking focus and image of
the Bank.
Financial results
The Bank’s net profit for the year ended 31 December 2008 was
QR 1,702 million, up QR 311 million compared with a net profit of
QR 1,391 million in 2007. The net profit was delivered against the
challenging conditions posed by the world’s financial markets in the
second half of the year.
Net interest income
Non-interest income
Net operating revenue
Operating expenses
Provisions for impairment losses
Share of results of associates Net profit for the year
2008
QR million
2007
QR million
1,217 1,551 2,768 (750)
(524)
208 1,702 876
1,067
1,943
(540)
(145)
133
1,391
Net operating revenue
Net interest income increased by QR 341 million to QR 1,217 million.
There was a strong and continuing credit demand in both the public
and private sectors of the economy during 2008 which is reflected
by an increase of QR 8.9 billion to QR 33.9 billion in the Bank’s loans
and advances to customers. The increase in lending was mainly in the
Qatari market and was across all industry sectors. The Bank continued
to manage its balance sheet efficiently and improved its net interest
margin to 3.0% in 2008 from 2.9% in 2007 despite the tightening of
liquidity, and increased competition for deposits, in the fourth quarter
of the year.
Non-interest income increased by QR 484 million to QR 1,551 million
in 2008 due, mainly, to:
• An increase in fee and commission income of QR 277 million
reflecting higher loan-related fees attributable to the increased
lending activity and also due to growth in other banking services
• Increased gains from financial investments of QR 71 million derived
from the strong performance of share markets in the first half of
the year
• Higher profits of QR 47 million from foreign currency transactions
undertaken on behalf of customers
• A higher contribution from Islamic financing and investment
activities which was up QR 21 million to QR 74 million
Operating expenses
Operating expenses increased to QR 750 million from QR 540 million
in 2007 as the Bank continued to invest in infrastructure and other
resources, particularly staff-related costs.
Staff costs
General and administrative expenses
Depreciation
Total operating expenses
2008
QR million
2007
QR million
420 262 68 750 287
201
52
540
Staff costs increased to QR 420 million, up QR 133 million, from QR
287 million in 2007. The staff costs rose for three main reasons:
• An increase in the Bank’s headcount from 972 at the end of 2007
to 1,241 at 31 December 2008; the increase in numbers was
mainly in retail banking and back-office operations supporting the
overall growth in the business
• Remuneration adjustments in 2008 which were in line with the
higher levels of inflation being experienced in Qatar from 2007
onwards
• Investment in staff training to meet the demands of the growing
business. The number of staff training days increased to just over
16,000 in 2008, from 7,700 in 2007, with an emphasis on industryspecific training content
11
Management review
12
General and administrative expenses rose by QR 61 million to QR 262
million primarily as a result of higher premises and technology-related
spend arising from an expanded real estate portfolio, implementation
of new technology systems and improved operational processes. The
volume of transactions processed by the Bank increased by 38% in
2008 to approximately 5.9 million transactions. We continued our
investment in the business to broaden our reach to customers and
to sustain improvement in the quality and reliability of our service.
Increased legal and professional fees and higher marketing spend also
contributed to the rise in costs.
Depreciation increased QR 16 million to QR 68 million due mainly to
the completion of the new Commercialbank Plaza building which was
depreciated for the last nine months of the year.
Provisions for impairment losses
2008
QR million
Net provision / (recovery) for impairment
on loans and advances
Impairment losses on financial investments
Impairment losses on other assets
Total provisions for impairment losses
61 465 (2)
524 2007
QR million
50
86
9
145
The loan portfolio continued to be well-diversified and of good quality;
however the Bank saw an increase in its net provision for loans and
advances to retail customers to QR 61 million in 2008, up from QR 50
million in 2007. The cumulative impairment provision at the end of
2008 was QR 287 million which represented 99% of non-performing
loans (2007: 97%). Whilst non-performing loans as a percentage of
gross loans increased marginally from 0.84% to 0.85%, there was
a larger increase in past due loans to QR 550 million from QR 313
million in 2007. An increase was seen in the 91 to 180 days bracket
which was up by QR 103 million to QR 202 million due mainly to three
individual retail accounts. These accounts were partially provided at 31
December 2008 and fully covered in the first quarter of 2009.
The global financial crisis impacted on the value of the Bank’s
investment portfolio and consequently provisions for impairment on
investments were made amounting to QR 465 million (2007: QR 86
million) in equity portfolios (local, GCC and international), other debt
securities and investment funds. At 31 December 2008 the total
negative fair value on the investment portfolio included in the Bank’s
equity stood at QR 443 million.
On 19 March 2009 the Bank sold its entire portfolio of Qatar equities
that had a net book value of QR 938 million (at 31 December 2008)
to the Government of Qatar which paid QR 418 million in cash and
provided a five-year bond of QR 520 million carrying a coupon
of 5.5%. Following this sale the total negative fair value on the
investment portfolio stood at QR 273 million at 31 March 2009.
Associates
Commercialbank’s associated companies achieved strong growth
and record profits in 2008, contributing QR 208 million, equivalent
to 12% of the overall net profit. In line with the Group’s collaborative
strategy, implemented across its associates, National Bank of Oman
and United Arab Bank continued to make significant progress in
aligning business strategies, systems and risk management practices
with Commercialbank.
The share of results of associates for the year was:
National Bank of Oman
United Arab Bank*
Asteco LLC
Share of associates
2008
QR million
2007
QR million
135
71
2
208
132
1
133
*the initial stake in UAB was acquired in December 2007
National Bank of Oman
National Bank of Oman (NBO) delivered a net profit for the year of RO
45.4 million, compared to RO 44.6 million in 2007, achieving strong
earnings performance in all core areas of the business and reflecting
a strategy focused on business growth and alignment of business
activities with Commercialbank.
NBO’s operating profit for 2008 increased by 49% to RO 54.3 million
compared to RO 36.4 million for the prior year. However NBO took
an impairment charge of RO 3.7 million (2007: RO Nil million) in the
fourth quarter against its investment portfolio that reduced the fullyear net profit.
Net loans and advances grew by RO 494 million to RO 1.4 billion, and
customers’ deposits were also higher, by RO 406 million, to RO 1.3
billion at 31 December 2008.
Asset quality continued to improve with non-performing loans
reducing to 3.5% of total loans, 100% covered by provisions. Capital
ratios remained strong with the capital adequacy ratio at 13.92%,
comfortably above the Central Bank of Oman’s requirement of 10%.
NBO paid a cash dividend to its shareholders for the year ended 31
December 2008 at 17.5% of capital.
United Arab Bank
Commercialbank raised its shareholding in United Arab Bank (UAB)
from 34.7% to 40% in January 2008 as planned. UAB’s performance
during 2008 was in line with expectations despite the difficult
business conditions. The net profit for 2008 was a record AED 250
million, representing an increase of 18.4% from AED 211 million in
2007.
13
Bin Omran branch officially
opened in November 2008 taking
our branch network to 27
14
During 2008 the Bank expanded Al Safa activities
in both retail and corporate sectors, opening a new
dedicated branch in Al Rayyan and adding five
machines to the ATM network
Management review
UAB has continued its policy of steady growth, focusing on
diversification, broadening the customer base, maintaining good
quality assets, improving the quality of customer service, applying
appropriate controls and ensuring good returns. As a result, the
operating income after provisions increased by 22.6% to AED 397
million from AED 324 million in 2007; earnings per share improved by
19.2% to AED 0.31 against AED 0.26 the previous year.
The balance sheet continued its steady growth with total assets
increasing by 22.2% to AED 7.6 billion. Loans and advances grew by
39.7% to AED 5.5 billion and customers’ deposits rose by 20.5% to
AED 5.0 billion.
UAB distributed a scrip dividend to shareholders for 2008 at 25% of
paid-up capital. The retention of profit will be used to strengthen its
capital position.
Asteco
Commercialbank took a 30% stake in Asteco LLP, a new company
in Qatar which started commercial operations on 10 February
2008. The company has a paid-up share capital of QR 5 million as
at 31 December 2008 and is engaged in real estate brokerage and
management of residential and commercial properties and related
properties. In the period to the end of 2008 the company achieved
a net profit of QR 4.9 million.
Business Unit review
Commercialbank operates under four main business units which are
structured principally by customer type and geographic location. The
net operating income for the Bank was:
Corporate Banking
Retail Banking
Al Safa Islamic Banking
Orient 1
Net operating income
2008
QR million
2007
QR million
1,964 683
104
17
2,768
1,315
547
71
10
1,943
Corporate Banking
Commercialbank offers a comprehensive range of corporate banking,
treasury, investment banking, cash management, transaction banking,
corporate finance and advisory services to its customers. With both
domestic and international companies we continued to leverage our
close working relationships with customers to service existing business
and generate new opportunities in the private sector. We have also
delivered new business through the strengthening of relationships
with public sector companies both in direct financing as well as
financing contractors employed by them in oil and gas, petrochemical,
power and infrastructure projects.
Corporate Banking has been a major contributor to the Bank’s overall
growth in recent years, achieved by increasing lending selectively, with
specific attention to asset quality and profitability. The main strategies
focused on the consolidation of domestic banking relationships,
expanding in partnership with Qatar’s public sector institutions,
expanding business in trade finance, cash management and fund
management services and aligning Investment Banking resources to
capitalise on evolving opportunities in equity and debt capital markets.
Corporate Banking had another outstanding year in 2008 and was
the major contributor to the Bank’s profitability. The business delivered
strong growth across all client segments over the course of the year.
Net operating income increased by 49% from QR 1.3 billion in 2007 to
QR 2.0 billion. With strong growth in new and existing business, loans
and advances grew by 31% to QR 25.9 billion, whilst deposits were up
15.8% to QR 22.1 billion at the end of 2008.
In underlining Commercialbank’s strength and standing in the
international markets, the Bank repaid a syndicated loan of US$ 800
million in November 2008 and also raised a US$ 380 million syndicated
loan term facility which was priced attractively at 90 basis points over
LIBOR.
In 2008 Domestic Banking continued to leverage on
Commercialbank’s relationship with customers to grow market share,
and increase profitability, through active management of accounts.
Revenue was significantly higher with net interest income up by 68%
and fee income up by 62% supported by a good growth in the loan
portfolio of 41%. Asset quality continued to remain strong.
Domestic Banking has strengthened its team of dedicated Relationship
Managers and reinforced the reputation of Commercialbank for both
personalized service and good response times that facilitates deal
acquisition. With the continuing large number of developmental and
infrastructure projects in Qatar, Domestic Banking has been supportive
of infrastructure financing, especially those linked to Government
projects.
In International Banking Commercialbank has an established track
record in origination, syndication and trade services and is a lender of
choice within the GCC. The visibility and image of Commercialbank
in regional syndications and debt capital markets has increased over
time. The Bank assumed senior MLA/Arranger roles in several regional
and international financings with an aggregate commitment of over
US$ 492 million in 2008.
Commercialbank has been able to structure complex solutions to
meet the borrowing requirements of sophisticated clients, including
that of an advisory role for a consortium of institutional investors.
Despite a challenging period towards the end of 2008, International
Banking was successful in growing fee income by 53% through
leveraging relationships with GCC corporates.
15
Management review
16
Despite unfavourable market conditions in the latter part of
2008, Investment Banking was able to generate income from
sale of investments of QR 276 million. However these gains were
subsequently offset by provisions of QR 465 million required against
the Investment portfolio, following the deterioration in the equity
markets around the world.
’Saturday Banking’ initiative was launched to allow its corporate clients
access to trade finance facilities during the weekend. Other new
initiatives included application of an electronic remittance and cash
management solution for Exchange Houses in Qatar and offering
marine insurance coverage to trade customers in collaboration with
Qatar Insurance Company.
Fee income generated from marketing of international funds,
brokerage and asset management grew by 30% against 2007. In
2008 Investment Banking saw the successful closure of The Pearl
Qatar Real Estate Development Fund, a US$ 600 million musharakah
fund investing in Qanat Quartier on The Pearl Qatar. Commercialbank
also successfully participated in the first closing of the private
placement of Esdarat Holdings KSC, a company developing nine
residential towers in Mecca, Kingdom of Saudi Arabia. The Al Waseela
Fund, Commercialbank’s in-house mutual fund, paid a 6% dividend
for its first financial year.
Retail Banking
The local brokerage business was buoyant with income from new
mandates from international institutional investors reaching doubledigit growth. During the year, the brokerage client profile was
diversified to include global fund managers seeking access to regional
markets on a one-stop shop basis. The brokerage team also increased
its research capabilities to provide value added services to its growing
institutional client base.
Treasury manages funding and liquidity requirements for the Bank
whilst also providing innovative hedging solutions for multinational
corporations and corporate customers. Commercialbank’s Treasury
ranks number two in the market for treasury services in Qatar.
Treasury strengthened its team of dealers to improve its contribution
to revenue and enhance market share in 2008 and also expanded its
coverage by opening a new desk to manage the increasing Islamic
banking demands from both Al Safa Islamic Banking and corporate
customers requiring Islamic hedging products.
Throughout 2008 liquidity management was a key area of focus for
the Bank. Treasury was successful in maintaining liquidity ratios above
the minimum levels required by regulators and for internal purposes.
Commercialbank continued to diversify its depositor base, delivering
longer term customer deposits whilst also achieving reciprocal Interbank arrangements with local and regional banks.
Transaction Banking continued to grow during the year particularly
in Cash Management and Trade Finance which remained core
activities for Transaction Banking. Total trade commissions grew from
QR 135 million in 2007 to QR 154 million during 2008. Although trade
volumes fell globally, trade finance capacity across the industry fell
more rapidly, leaving Commercialbank well-positioned to take market
share.
The key achievement of Transaction Banking in 2008 was the
consolidation of the business which enabled the delivery of quality
and unparalleled services to corporate clients. An innovative
Commercialbank’s Retail Banking offers a full suite of products and
services to meet the borrowing, wealth management and transaction
needs of individuals. The Retail Banking strategy is to deliver
consistent, superior service by providing financial solutions that meet
the evolving needs of its customers.
During 2008, Retail Banking achieved growth in all areas, confirming
the Bank’s reputation for its high customer service standards, superior
retail banking products and first-to-market initiatives. A prime example
of the Bank’s innovative product offering was the introduction of
the new ’e-Savings Plus’ product which, together with the existing
e-savings product, attracted over QR 1 billion in balances during 2008.
Retail Banking delivered strong results in 2008, with net operating
income rising from QR 547 million in 2007 to QR 683 million. Loans
and advances grew by 27% to QR 5.5 billion, whilst deposits were up
37% to QR 7.3 billion at the end of 2008. The business continued to
grow the franchise by extending its footprint across Qatar, opening
four new branches and sales offices, and increasing the remote
network by 20 new ATMs. Some of the structural developments
included focus on customer segmentation, affluent segment
penetration and branch performance management.
Commercialbank’s retail market leadership strategy seeks to maximise
the value of technology as a source of innovation and differentiation.
Alternate banking channels, such as bankDirect, SMS banking and
IVR, continue to incorporate additional banking functionality and
services to provide a continued improvement in banking convenience
to its customers. Commercialbank was also the first bank in Qatar
to introduce ’Instant Account Opening’ in the branches, providing
customers with ATM cards and cheque books on-the-spot.
Commercialbank continued to dominate the highly competitive credit
card market in Qatar, with the credit card asset base growing by 12%
in 2008. The vehicle finance sector shared similar growth with an 11%
increase in lending, driven by effective partnership campaigns with
leading car dealerships in Qatar and supported by strong promotional
campaigns.
Commercialbank continued to be a leader in the property finance
market in Qatar, particularly in prestigious new developments such as
The Pearl Qatar, through our close working relationships with leading
developers. The first Retail bank branch in The Pearl Qatar was opened
in early 2009 with two further branches planned for opening later in
the year, providing a premium relationship banking experience aligned
with the affluent residents of The Pearl Qatar.
17
Commercialbank continued
its progress as a player in the
international capital markets
by becoming the first Qatar
company to list its shares, in
the form of Global Depositary
Receipts, on the London Stock
Exchange.
Mr. Chris Gibson-Smith (Chairman – LSE) presenting
the official commemoration plaque to Mr. Omar
Alfardan (Director) and Mr. Andrew C. Stevens ( Group
Chief Executive Officer )
Management review
18
Despite a challenging economic environment, Commercialbank
is well-poised to selectively grow its market share in segments of
retail banking in 2009. Key emphasis will be on ensuring sustainable
growth and profitability by focusing on targeted market and
product segments and with a continued emphasis on effective risk
management.
Commercialbank’s Al Safa Islamic Banking, which is in its fourth year of
operation, recorded robust growth in business volumes and income.
Al Safa activities in both the retail and corporate sectors witnessed
strong growth and further expansion, including the opening of a
new branch in Al Rayyan، which brought the number of dedicated
branches to six, and also by the addition of five new ATM’s to its
distribution network.
Al Safa Islamic Banking continued to perform well in 2008 with net
profit climbing to QR 71 million from QR 40 million in 2007, reflecting
strong growth in the Islamic banking market particularly in the
corporate sector. There was, however, a noticeable slowdown towards
the end of the year in the Islamic Sukuk and syndication markets.
Customers’ deposits grew to QR 3.3 billion from QR 1.4 billion in
the previous year, and total Islamic assets reached QR 4.1 billion
compared with QR 1.7 billion at the end of 2007.
During the year, Al Safa expanded its range of services offered to
the corporate sector and has entered into bilateral relationships and
syndicated transactions with some well-known local corporates. Al
Safa was one of the lead arrangers in the Sukuk financing for large real
estate projects for Salam Bounian and United Development Company,
and has also secured an important mandate from a leading cement
company to be the sole arranger and underwriter for financing a new
green-field cement plant.
For the third consecutive year Al Safa Islamic Banking participated
as the sponsor of the Annual World Islamic Infrastructure Finance
Conference which was held in Doha under the patronage of His
Excellency the Minister of Finance; the conference was a resounding
success, attracting attendees from both the global and regional
Islamic financing community.
Orient 1 Limited
Orient 1 Limited consolidated its exclusive Diners Club franchise
business in its key markets offering increased card acceptance and
regional brand and product synergies whilst leveraging its core
operations to improve regional operating efficiency. Following a
strategic review Orient 1 successfully divested its Bahrain business
which will be better served and developed through local bank
ownership and now operates in Qatar, Oman and Egypt. The profit
arising on sale of the Bahrain business was QR 9.8 million.
A successful year in 2008 strengthened Orient 1’s positioning to
continue its innovative work with other Group businesses. Going
forward Orient 1 expects to see the benefit of its core business
expansion, income diversification and advanced new product
initiatives.
Capital
During the year the Bank’s total equity was strengthened by QR 3.8
billion to QR 10 billion as at 31 December 2008, mainly due to the
successful issue of 24 million new ordinary shares. The capital raising
was accomplished as a three part process via a Rights Offering in June,
a Global Depositary Receipt Offering which was listed on the London
Stock Exchange and a private placement of shares in July; the new
ordinary shares were issued at QR 136.50 per share.
On 13 October 2008 the Government of Qatar announced that
the Qatar Investment Authority (QIA) would be providing additional
capital of up to 20% for all Qatari banks listed on the Doha Securities
Market, demonstrating the support of the government authorities
for the banking system in Qatar by strengthening the capital of
individual banks. On 26 November, the Bank’s shareholders approved
a potential 20% increase in its share capital which will enable the Bank
to issue up to 41 million new ordinary shares at the closing price on
the Doha Securities Market on 12 October 2008 of QR 78.30.
On 21 January 2009, the 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
new ordinary shares were issued to the QIA on 16 February 2009.
It is planned that an additional 5% capital be subscribed during
December 2009.
The Banks’ capital adequacy ratio at 31 December 2008 was 15.66%
compared to 11.85% at the end of 2007 and comfortably exceeds
Qatar Central Bank and Basel II requirements.
The Board recommended the distribution of a cash dividend of QR 7
per share for the year ended 31 December 2008 which was approved
at the Annual General Assembly on 16 February 2009 and paid to
shareholders.
Risk Management
Identification, measurement and management of risk are a strategic
priority for Commercialbank. The provision of financial services
carries a number of diverse risks which may have a material impact
on financial performance. Consequently, Commercialbank operates
within a comprehensive framework covering accountability, oversight,
measurement and reporting, to maintain high standards of risk
management.
The principal risks faced by Commercialbank are:
•Credit risk – the risk of potential loss from a customer’s failure to
meet obligations as they fall due. The effective management of
credit risk is a critical component of a comprehensive approach to
risk management. The Commercialbank Risk Committee meets
monthly to review all risk related issues and provide decisions and
recommendations that ensure the consistent alignment of the risk
profile to match with the highest industry standards.
•Market risk – defined as the potential loss in value or earnings
arising from changes in external market factors such as interest
rates, foreign exchange rates, commodities and equities. The
Asset and Liability Committee (ALCO) meets monthly, and more
regularly where appropriate, to review the Bank’s balance sheet
and recommend appropriate actions.
•Liquidity risk – the risk that Commercialbank does not have
sufficient financial resources to meet its obligations when they fall
due, or will have to do so at excessive cost. The ALCO continuously
reviews liquidity risk to ensure that it is soundly managed within
approved guidelines.
•Management Risk Committee provides recommendations
to Board Risk Committee on all risk, policy and portfolio related
issues; maintaining a high level Bank-wide risk policy framework;
monitoring the enterprise-wide dashboard of risk and maintaining
risk tolerance levels and portfolio limits by various dimensions
•Board Credit Committee is the highest approval authority
for transactions above the Management Credit Committee
authorisation
•Operational risk – arising from internal processes, people and
systems or from external events. The Commercialbank Risk
Committee meets monthly to review all operational risk related
issues and provides recommendations to ensure risk concerns are
mitigated and remedial action items are effectively monitored via
ageing analysis and dashboard indicators.
•Management Credit Committee is an approving authority
on all counterparty risk exposures, product programmes and
underwriting exposures on syndications
•Strategic risk - the risk of a potential negative impact on
shareholder value as a result of a business decision taken as part
of the strategic planning process for both organic growth and the
identification of possible acquisitions.
Employees
Commercialbank has an established specialist risk function, reporting
to the Chief Risk Officer, in support of the various Risk Committees. Its
accountabilities are:
•To recommend policies, standards and limits
•To monitor compliance with those standards and limits
•To provide leadership in the development and implementation of
risk management techniques
As part of the evolution of the credit risk management framework
at Commercialbank, compliance with Basel ll and adoption of best
practices are key areas of focus.
Risk management within Commercialbank is based on the risk
appetite and strategy set by the Board of Directors through Credit,
Audit and Risk and Policy & Strategy Committees. During 2009,
the Bank decided to enhance its risk governance structure further
by changing the Committee composition – there are now three
Management level Committees and three Board level Committees
for Audit, Risk and Credit respectively. The Board committees are
supported in the risk management and review process by the
respective Management Committee.
•Board Audit Committee is responsible for setting policy on
all Audit issues and maintaining oversight of all Bank audit issues
through the Management Audit Committee
•Management Audit Committee monitors and reports
adherence to policy on all audit issues and maintains control of all
Bank audit issues as established by the Board Audit Committee
•Board Risk Committee is responsible for all aspects of
enterprise-wide Risk Management
The above enhancements will strengthen the risk management
framework, improve quality of decisions and result in a better Risk
Strategy and Governance structure.
Commercialbank’s business continued to grow in 2008 due to the
continued hard work, commitment and professional approach of its
employees. The growth also led to an increase in staff numbers which
totaled 1,241 at the year-end.
The Bank continued its commitment to national development which
included, in 2008, the recruitment and development of young
Qataris who attended one of four foundation training programmes
in banking and are now pursuing their career within the Bank’s
business units. In 2009 the Bank will launch a new world-class Qatari
university graduate professional development programme which will
incorporate best practices.
Community Support
Commercialbank is committed to playing an active role in Qatar’s
future success by investing in cultural projects, educational
programmes and charitable and sporting events to support and
provide for local communities.
As part of its commitment to community services, charitable
causes and family values, Commercialbank contributes to the Qatari
community by actively supporting and sponsoring many local
charities, community service projects and international humanitarian
works, as well as cultural and sporting events.
Since its formation, the Bank has regularly provided financial and nonfinancial support to numerous local causes and, during 2008, made
donations to community initiatives and charitable organizations.
As part of its commitment to foster economic and social
regeneration within Qatar, the Bank supported the Social Fund for
Development by helping to establish the “Tanmiyah Center”, an
institution that develops small and medium business enterprises by
providing entrepreneurs with the skills, tools and methods to identify
business opportunities and assess their feasibility.
19
Commercialbank Plaza
20
Commercialbank Plaza – Sadara Lounge
21
Commissioned in 2002, Commercialbank
Plaza is the first perimeter dual core building
in Qatar. Completed in 2008 it has three
basement floors, ground, mezzanine and
twenty two upper floors.
The Plaza is a ‘green intelligent’ building
with the greatest mass being the two cores
oriented to the east and west where the
impact of the rising and setting sun is at its
greatest. Occupied space is sheltered and
protected between these two cores and the
roof is highly insulated to protect the building
when the sun is at highest and hottest in
the day.
The building was the first to be served by a
local chilled water system, thereby achieving a
significant reduction in energy consumption,
while the introduction of the first fully
glazed facade in the region exploits the long
distance views from within the building. An
intelligent building management system
tracks the sun’s path through the seasons to
automatically align the facade blinds to block
sun glare and excessive heat gain.
The triple-glazed, ventilated, clear facade is
unique in providing a barrier to the elements
with minimal mass and full transparency.
This ventilated facade acts as the ‘skin of the
building’ continually adjusting in response to
the changing external climate.
The building is the first in Qatar to have
uninterrupted floor to ceiling clear glass and
the first in Qatar with a modular raised floor
throughout its accommodation, in line with
modern office technology requirements. It
is the first building in Qatar to exploit a large
grid structure, so that the floors only have
three internal columns and is also the first
building in Qatar with clear transparent space
front to back as a result of the perimeter
location of the dual cores.
The interior of the building provides the
very best of interior office accommodation.
Interior spaces incorporate highest quality
finishes that compliment the exterior of the
building and the overall design creates a
contemporary Arabic style. Commercialbank
Plaza stands as a permanent mark of the
Bank’s commitment to Qatar.
Management review
22
Education
Education is a particular focus of Commercialbank’s community
involvement programme. The Bank has sponsored a number of
students at the College of the North Atlantic, creating opportunities
for those who might otherwise not be able to maximize their
potential.
Working closely with the Labour Department to provide Qatari
students with useful work experience and on-the-job training,
Commercialbank also offers Qataris a number of places in the Bank’s
training programmes which aim to develop young talented Qatari
graduates and undergraduates into proficient bankers. In addition, the
Bank’s Management Training Programme targets the most capable
Qatari university graduates for development into key leadership
positions.
Bringing sport and business together
Sport is an important element in all our lives, providing entertainment
and the opportunity to share in the successes of some the world’s
best sportsmen and women.
clear guidance, contribution and support provided by our Chairman,
Managing Director and members of the Board of Directors to
management which has enabled the Bank to enhance its reputation as
a trusted and reliable regional banking group.
Our continued achievements are also due to the ongoing advice and
pro-active support that the Bank receives from the Qatar Central Bank
under the wise guidance of His Excellency Sheikh Abdullah bin Saud
Al Thani. During these challenging times, the Central Bank has shown
clear leadership and decisiveness enabling the Qatar banking and
financial sector to be held in high regard in global financial markets.
The Bank’s strategy continues to be focused on sustainable growth in
our core businesses with proactive management of risk, liquidity and
capital. In the face of challenging market conditions, our focus on key
banking fundamentals will deliver greater value to our shareholders
and an ever-improving quality of service to our customers.
Inspired by Qatar and committed to its future, the Bank is strongly
positioned to face the challenges that lie ahead.
Title ownership of the Commercialbank Qatar Masters and the Grand
Prix of Qatar Moto GP reflects the Bank’s promotion of excellence in
sports and the international reputation of Qatar.
Both events – viewed by a global audience of millions - are a
demonstration of the Bank’s commitment to playing a key role in
the international promotion of the country and working in harmony
with the Qatari Government’s vision of Qatar as a venue for the
organization and staging of world-class sporting events.
In November 2008 Commercialbank became the proud Gold
Sponsor of the prestigious Sony Ericsson Womens Tennis Association
Championship which was hosted, for the first time in the Middle East,
in Qatar.
Healthcare - caring for our community
Healthcare is another key area in which Commercialbank regularly
contributes. Past initiatives have included educational tools for the
blind through the Al Noor Institute; a youth diabetic patient camp
through the Qatar Red Crescent Society; a new clinic for women at
Qatar University; and a gymnasium and equipment for the Qatar
Diabetes Association.
More recently, Commercialbank donated to Hamad Hospital to fund a
new pediatrics daycare observation unit and for the expansion of their
operation room waiting area, which will contribute to the health of
future generations. In 2008, Commercialbank supported the Center
for Voluntary Activities, a resource that provides essential support to
cancer patients.
Andrew C. Stevens
RESPONSIBILITY STATEMENT
To the best of our knowledge, financial statements prepared in
accordance with the International Financial Reporting Standards
give a true and fair view of the assets, liabilities, financial position
and profit of The Commercial Bank of Qatar (Q.S.C.). We confirm
that the management review, together with the notes to the
financial statements, includes a fair review of development and
performance of the business and the position of the group together
with a description of the principal risks and opportunities associated
with the expected development of the group.
30 April 2009
For and on behalf of Board of Directors
Acknowledgements
Commercialbank has had another successful year made possible by
the hard work and dedication of our employees whose efforts have
enabled the Bank to produce a track record of increased growth
and improved profitability. We are also grateful for the continuing
Mr. Hussain Ibrahim Alfardan Managing Director Mr. A. C. Stevens
Commercialbank is committed to having a
set of strong corporate governance practices
that allocate rights and responsibilities
among the Bank’s shareholders, Board of
Directors and management in a manner that
enhances shareholder value.
In fulfilment of the Bank’s responsibilities to
our stakeholders, the following standards
have been approved and adopted by
the Board of Directors of the Bank and
provide the framework for the corporate
governance. These standards will be
reviewed by the Board periodically to
ensure the Bank maintains best practices
in corporate governance, and that these
practices provide for the effective oversight
and management of the Bank.
Role of the Board and Management
The Bank’s business is conducted under the
oversight of the Board of Directors whose
primary responsibility is to provide effective
governance over the Bank’s key affairs,
including the appointment of executive
management, approval of business strategy,
evaluation of performance and assessment
of major risks facing the Bank.
In discharging its obligations the Board must
exercise judgement in the best interests
of the Bank and may rely on the Bank’s
management to implement approved
business strategy, resolve day-to-day
operations issues, keep the Board informed
and maintain and promote high ethical
standards. The Board may delegate authority
in management matters to the Bank’s
management subject to clear instructions
being given in relation to such delegation
of authority and the circumstances in which
management shall be required to obtain
Board approval prior to taking a decision on
behalf of the Bank.
The Board shall establish rules in relation to
the dealings of the Directors and employees
in securities issued by the Bank.
Board Composition and Director
Qualifications
The size of the Board shall be determined
by the Bank’s Articles of Association. The
number of Directors shall (i) be determined
from time to time according to the
requirements of the Bank, and (ii) be subject
to Director Independence provisions set out
below. The Board will consist of a balance of
Non-Executive and Independent Directors.
The position of Chairman of the Board and
Bank’s Managing Director may not be held
by the same individual.
The Board shall collectively possess
professional knowledge, business expertise,
industry knowledge and financial awareness
to carry out its oversight responsibilities and
Directors shall have experience and technical
skills in the best interests of the Bank.
Voting for Directors
The Board reviews the appropriate skills and
characters required of Directors from time
to time and the qualifications of potential
nominee Directors and recommends
suitable nominee Directors for election. In
order to be elected to the Board a nominee
Director must receive more shareholder
votes cast for than against the nominee
Director’s election.
A Director’s membership to the Board
shall terminate in the event the Director
is convicted of an offence of dishonour or
breach of trust or is declared bankrupt.
Vacancies on the Board may be filled in
accordance with the Bank’s Articles of
Association.
Director Responsibilities
The responsibilities of the Chairman of
the Board shall be as defined in the Bank’s
Articles of Association.
Directors are given appropriate and timely
information to ensure they can maintain full
and effective control over strategic, financial,
operational, compliance and governance
issues of the Bank.
Directors shall at all times act in accordance
with the Bank’s Articles of Association and
the Commercial Companies Law.
Director Independence
At least one third of the Directors shall be
Independent Directors and a majority of the
Directors shall be Non-Executive Directors.
Independent Directors shall notify the Board
as soon as reasonably practicable in the
event that their circumstances change in
any manner that may affect the Board’s
evaluation of their independence. NonExecutive Directors must be able to dedicate
suitable time and attention to the Board and
their directorship must not conflict with any
other interest of the Director.
Board Meetings
The Board shall hold meetings at least
once every two months pursuant to either
(i) written notice from the Chairman of
the Board at least one week prior to the
meeting, or (ii) written request submitted by
at least 2/3 of the Directors.
Notice of meetings issued by the Chairman
of the Board shall include the meeting
agenda. Directors may request that a
matter be included on the agenda.
Directors are expected to make every effort
to attend, in person, all scheduled Board
meetings and meetings of the committees
of the Board on which they serve. A Board
meeting shall only be validly called provided
a majority of Directors are present.
Voting in Board meetings shall be in
Association. Matters considered, and
decisions taken, by the Board shall be
recorded by means of minutes to be kept by
the secretary of the Board.
Board Committees
The standing committees of the Board are
(i) the Audit and Risk Committee, (ii) the
Policy and Strategy Committee, (iii) the
Executive Credit Committee, and (iv) the
Premises Steering Committee.
Committee members shall be appointed by
the Board. Each Board committee shall have
its own written terms of reference.
23
24
Director Remuneration
Remuneration of Directors shall be in
Association and may take the form of (i)
fixed salaries, (ii) director’s fees, (iii) in-kind
benefits, or (iv) a percentage of the Bank’s
profits. Directors may receive multiple forms
of remuneration provided that remuneration
by way of a percentage of the Bank’s profits
shall not, after deduction of expenses,
depreciations and reserves and distribution
of dividends of not less than 5% of the
Bank’s capital, exceed 10% of the net profit
of the Bank.
Independent Advisors
The Board and its committees may retain
counsel or consultants with respect to
any issue in relation to the Banks affairs.
Costs and expenses incurred pursuant to
appointment of independent advisers shall
be borne by the Bank.
Board of Directors
The Board of Directors of Commercialbank,
nominated by the shareholders, is
responsible for the overall direction,
supervision and control of Commercialbank.
Education, experience and
membership in other banks, financial
institutions and companies
Mr. Omar Hussain Alfardan
BA in Business Administration and Masters in
Finance from Webster University, Geneva.
Businessman.
H.E. Abdullah bin Khalifa Al Attiyah
BA in Political Science from USA.
President of companies comprising Alfardan
Group. Director of United Development
Company. Chairman of National Bank of
Oman. Vice Chairman of United Arab Bank.
President of Resorts Development Company.
Chairman of Qatar District Cooling Company.
Vice Chairman and Managing Director of
Qatar Dredging Company. Board member of
Qatar Red Crescent Society.
State Minister. Deputy Chairman of
Qatar Insurance Company and United
Development Company. Chairman of Gulf
Publishing and Printing.
Sh. Abdullah bin Ali bin Jabor Al Thani
BA Arts, Social Science.
Director of National Bank of Oman and
United Arab Bank. Owner of Abdullah Bin
Ali Trading Company and Vista Trading
Company.
Mr. Jassim Mohammed Jabor Al
Mosallam
Businessman.
Mr. Hussain Ibrahim Alfardan
Owner of Al Mosallem Trading Company.
Director of Qatar German Medical Devices
Company and Qatar Clay Bricks Company.
Businessman.
Started career as a banker in Standard
Chartered Bank. Chairman of Alfardan Group
and United Development Company. Board
member of Qatar Insurance Company.
Founding member of Investcorp Bahrain.
Vice Chairman of Qatar Businessmen’s
Association.
Commercialbank, by its Articles of
Association, is required to have nine
Directors. Directors hold office for terms of
three years and may be re-elected.
Mr. Khalifa Abdullah Al Subaey
BA in Economic and Political Science from
Central Michigan University.
Started career in Finance Department
of Qatar Petroleum. Board member of
insurance and real estate development
companies; President and CEO of Qatar
Insurance Company. Holds senior positions
As at 31st December 2008, the Board of
Directors of Commercialbank comprised the
following members:
Director
Position
Date of first
Appointment
Date of expiration of
current Appointment
H.E. Abdullah bin Khalifa Al Attiyah
Chairman (since July 1999)
1980
2010
Sh. Abdullah bin Ali bin Jabor Al Thani
Vice Chairman (since July 1999)
1990
2010
Managing Director
1975
2010
Mr. Omar Hussain Alfardan
Member
2002
2010
Mr. Jassim Mohammed Jabor Al Mosallam
Member
1975
2010
Mr. Khalifa Abdullah Al Subaey
Member
1987
2010
Sh. Jabor bin Ali bin Jabor Al Thani
Member
2002
2010
Mr. Abdulla Mohammed Ibrahim Al Mannai
Member
1987
2010
Sh. Nasser bin Faleh Al Thani
Member
1975
2010
in various sports promotion organisations
including Qatar National Olympic Committee
and Asian & Qatar Handball Association.
Director of Social Development Center,
Qatar and United Development Company.
Sh. Jabor bin Ali bin Jabor Al Thani
Businessman.
Director of Gulf Publishing and Printing WLL.
Mr. Abdulla Mohammed Ibrahim Al Mannai
Businessman.
Director of Qatar Company for Meat and
Livestock. Owner of AMPEX, Qatar Marble
and Islamic Mozaic Company. Member of
the Qatar Businessmen’s Association.
Sh. Nasser bin Faleh Al Thani
Businessman.
Director of United Development
Company.
Executive Management
Education, experience and affiliations
The Executive Management of
Commercialbank is responsible for overall
day-to-day executive management of the
Bank.
Andrew C. Stevens
Graduated from Birmingham University in
1980 with a B.Com (Hons) in Banking and
Finance. Joined Commercialbank in 1989;
CEO of Commercialbank from 2001; Group
Chief Executive Officer of Commercial
Bank Group since 2008. Over 28 years
extensive experience in international banking
including diverse business development,
business process re-engineering and change
management. Director of National Bank
of Oman, United Arab Bank, Diners Club
Services Egypt and Chairman of Orient 1
Limited.
As at 15 March 2009, the Executive
Management of Commercialbank is as
follows:
Andrew C. Stevens
Group Chief Executive Officer (CEO)
Abdulla Al Raisi
Deputy CEO & Head of Government
Relationships
Azza Fotouh
Deputy CEO & Chief Risk Officer
Khalil Shaltout
Executive General Manager (EGM) & Chief Al
Safa Islamic Banking Officer
Salman Al Mohannadi
EGM & Chief International Banking & Capital
Markets Officer
Abdul Jalil Borhani
EGM & Chief Domestic & Transaction
Banking Officer
Rajbushan Budhiraju
EGM & Chief Retail Banking Officer
Sandeep Chouhan
EGM & Group Chief Operating Officer
Arif Mukhtar
EGM & Regional Head of Credit
Nicholas Coleman
EGM & Group Chief Financial Officer
Hugh Thompson
EGM & Group Chief Legal & Corporate
Affairs Officer
Abdulla Al Raisi
Graduated from Portland State University in
1982 with a B.Sc. in Political Science & Social
Science. Joined Commercialbank in 1998;
Deputy CEO since March 2007. Previously
with QAFCO. 26 years experience, including
extensive banking experience, in Arab Gulf
States Folklore Center and Doha Bank Ltd.
respectively.
Azza Fotouh
Graduated from American University in Cairo
in 1982 majoring in Business Administration.
Joined Commercialbank in 1988 holding
positions as Credit Officer, Manager
– Corporate Banking, AGM & Head of
Domestic Banking, Deputy General Manager
of Corporate Banking and Capital Markets,
Group Head of CBCM respectively and was
promoted to the rank of Executive General
Manager in 2006. Deputy CEO & Chief
Risk Officer since January 2009. Over 25
years banking experience, including 5 years
with Egyptian American Bank (an affiliate of
American Express).
Khalil Shaltout
Graduated from Faculty of Commerce
Cairo University (BA Honours) with a postgraduate degree in Business Administration
Study from the American University in
Cairo. Joined Commercialbank in July 2007.
Previously with Gulf International Bank,
Bahrain as Vice President-Islamic Banking.
Over 30 years extensive banking experience
with leading regional and international
Islamic and conventional banks in Cairo,
London, Bahrain and Qatar, including
25
26
Egyptian American Bank, Cairo (an affiliate
of American Express); The Arab Investment
Company, Bahrain; Al Baraka International
Bank, London; and European Arab Bank,
London.
Salman Al Mohannadi
Joined Commercialbank in August 2003
as Manager, International Banking, held
position of Senior Assistant General
Manager & Deputy Chief Corporate Banking
Officer; Executive General Manager & Chief
International Banking & Capital Markets
Officer since January 2009. Twenty years
banking experience, including 14 years
with Qatar National Bank prior to joining
Commercialbank.
Abdul Jalil Borhani
Graduated from Northern Arizona University
in Business Administration in 1992. Joined
Commercialbank in 1993 beginning his
career in corporate banking as relationship
officer; EGM & Chief Domestic and
Transaction Banking Officer since January
2009.
Rajbushan Budhiraju
Bachelor of Engineering, Petroleum
Engineering, Indian School of Mines,
Dhanbad, India (1987); M.B.A. Major in
Marketing and Finance, Indian Institute of
Management, Calcutta, India (1989). Joined
Commercialbank as EGM & Chief Retail
Banking Officer in August 2008. Previously
with Arab National Bank, Saudi Arabia, as
Retail and Consumer Banking Head. Over 20
years banking experience, including 13 years
with Citibank in India, Singapore, Hungary
and Poland holding positions including
Relationship Manager for the high net worth
segment, Product Manager for Liabilities,
Credit Cards and Loans and as the Marketing
Director for Retail Products including the
distribution of mutual funds.
Sandeep Chouhan
Graduated from National Institute of
Technology, India. Joined Commercialbank
as EGM & Group Chief Operating Officer in
June 2008. Previously with Barclays Bank in
London. Over 20 years global experience
in banking operations and technology,
including 5 years with Morgan Stanley and 8
years with Citigroup across EMEA, Asia and
USA. Chartered Professional of the British
Computer Society.
Arif Mukhtar
Graduated from University of Minnesota’s
Carlson School of Management with an MBA
(major in Finance). Joined Commercialbank
as EGM & Chief Risk Officer in November
2007; Regional Chief Credit Officer since
February. Previously with Citibank for 26
years, holding senior positions in Business
and Risk in Middle East, Central and Eastern
Europe, East Africa and South Asia.
Nicholas Coleman
Graduated from London Guildhall University
with a BA (Hons) in Economics. Joined
Commercialbank as EGM & Group Chief
Financial Officer in October 2008. Previously
with Morgan Stanley in London. Over 21
years experience as a seasoned banker,
including 2 years with The Bank of New
York in London, 15 years with National
Westminster Bank in London and 3 years
with Arthur Young in Kuwait. Fellow of
the Institute of Chartered Accountants in
England and Wales.
Hugh Thompson
Graduated from Oxford University (M.A.
Hons) with degree in law. Qualified as
English solicitor. EGM & Group Chief Legal &
Corporate Affairs Officer since 2008. Joined
Commercialbank in January 2004. Previously
with the law firm Richards Butler in Doha and
London. 25 years experience as a banking
lawyer in London, in both private practice
and as an in-house lawyer with National
Westminster Bank and Standard Chartered
Banking Group, including secondment to the
Bank of England. Director of National Bank
of Oman, United Arab Bank, Diners Club
Services Egypt and Orient 1 Limited.
Director and Executive Management
remuneration
Total remuneration earned by the Board
of Directors of Commercialbank in 2008
(including fixed and variable remuneration
and meeting attendance fees) is:
Total
QR 49,800,000
Total remuneration earned by the Executive
Management (defined as the 31 most
senior members of management) of
Commercialbank in 2008 is:
Fixed Remuneration QR 30,216,000
Discretionary Remuneration QR 15,729,000
Fringe Benefits QR 7,460,000
Total QR 53,405,000
Policy on promotion
Commercialbank is committed to fostering
the ongoing education, professional
and personal development and career
advancement of its employees.
We recognise that, in the course of meeting
objectives, the duties and functions of
our employees may change in complexity
and responsibility and promotions are
attributable to increased responsibility
levels but subject to exceptional past
performance. The added benefits of a
promotion serve as an incentive for better
work performance, enhance morale and
create a sense of individual achievement and
recognition.
A promotion may occur through:
1. a reclassification of an employee’s existing
position as a result of the employee
performing duties at a higher degree of
responsibility and complexity than the
current classification calls for; or
2. the filling of a higher level vacancy;
Commercialbank first looks internally for
suitable candidates to fill a vacancy and
no external advertisement of the vacancy
is run unless and until exhausting all
internal recruitment avenues.
Eligibility
27
Employees of Commercialbank need only
satisfy the qualifications as specified in the
job description for the vacant position, and
not the qualities, skills or knowledge of the
incumbent and are eligible for promotion:
1. pursuant to successful completion of
the probationary period specified by the
conditions of employment;
2. pursuant to exceptional semi-annual and
annual performance appraisals; and
3. regardless of age, gender, race, colour,
nationality or religion.
Ownership structure
In accordance with Article 7 of
Commercialbank’s Articles of Association,
no person (whether natural or juridical) shall
own at any time more than 5% of the total
shares in Commercialbank by any means
other than inheritance, with the exception
of (i) Qatar Investment Authority, and (ii)
a custodian or depository bank holding
shares in respect of an offering of Global
Depositary Receipts.
As at 15 March 2009, 86.23% of the total
shares in Commercialbank are held by
Qatari nationals (whether individuals or
entities) and 13.77% of the total shares
in Commercialbank are held by foreign
investors.
Penalties, fines or punishments
imposed on Commercialbank by
Regulatory Authorities
Fines aggregating QAR 377,000 were
imposed on Commercialbank in 2008 by
Qatar Central Bank in respect of breaches of
Central Bank Regulations.
Material issues regarding
Commercialbank employees and
stakeholders
There are no material issues regarding
Commercialbank’s employees and
stakeholders to be disclosed in this report.
H.E Abdullah bin Khalifa Al Attiyah - Chairman, Mr Hussain Alfardan- Managing Director, Mr Jassim
Mohammad Jabor Al Mosallam - Director and Mr Andrew C. Stevens - Group CEO, recognizing long service
awards recipients at the the Annual Staff Party.
Corporate social responsibility policy
Health and Safety
Commercialbank, as a responsible corporate
citizen, recognises its social responsibilities.
Conduct our business with high regard for
the health and safety of our employees,
contractors and the communities
including following local and best
practice health and safety guidelines and
standards.
Commerce + Conscience + Compassion
= Corporate Social Responsibility.
The Bank is committed to promoting
sustainable development, protection and
conservation of human life, health, natural
resources and the environment and adding
value to the communities in which we
operate and recognise the importance of
both financial and non-financial performance
in efforts to maintain long-term, sustainable
performance.
Corporate Social Responsibility involves
assessing the ways that our actions and
operations may potentially impact others.
Commercialbank’s approach to Corporate
Social Responsibility is rooted in our core
values which shape the way we do business.
Commercialbank’s core values are:
Environmental Stewardship
Operate in a safe and environmentally
responsible manner and minimise
the impact of our operations on the
environment, including by reducing waste.
2. What we invest in
Community Development
Sustainable programmes to improve
quality of life in the communities in which
we live and operate.
Education and Training
1. How we behave
Programmes and learning opportunities to
develop a skilled, competitive workforce.
Stakeholder Engagement
Corporate Citizenship
Establish relationships with stakeholders,
including communities and
Commercialbank stakeholders, to solicit
their input and involvement on critical
issues.
Support (financial or otherwise) of
philanthropic, social development,
volunteer programs; community service
projects; humanitarian works; arts; and
sports.
28
3. What we influence and promote
Environmental policy
Health policy
Human Rights
Commercialbank believes that it is good
business practice and our duty to protect
the natural resources of the communities
we serve and we are committed to
environmental management and to
ensuring that no harm should come to the
environment through performance of our
operations.
Commercialbank, recognising that good
health and safety management has positive
benefits to an organisation, is committed
to providing and maintaining a healthy, safe
and secure working environment for all our
employees.
Respect and protection of fundamental
human and worker rights, including
ensuring a discrimination-free work
environment; equal opportunities; no
racism of any form; no harassment of
any form; regulated working hours and
paid holidays; fair compensation and the
principal of ‘equal pay for equal work’ for
men and women.
Rule of Law
Respect local laws and promotion of
the principles of justice, fairness and
equality.
Transparency
Promote openness in all business
dealings.
High Performance
High performance team culture and
a collaborative, supportive work
environment where employees
are encouraged to reach their full
professional potential.
4. What we believe in
Code of Business Conduct
Conducting our business honestly
and with integrity, maintaining ethical
behavior in all our operations, including
fighting all forms of corruption.
Enforcing strict principles of corporate
governance and supporting transparency
in all our operations.
In keeping with our beliefs and
commitments, Commercialbank endeavours
to ensure that all management and staff
of Commercialbank comply with our
environmental policies, including:
1. conducting our business in an
environmentally responsible manner;
2. complying with all applicable
environmental laws and regulations;
3. making environmental concerns an
integral part of the planning and
decision making process;
4. controlling environmental impacts
and the prevention or minimization
of pollution, including operating a
paperless environment;
5. educating management and staff to
be accountable for environmental
stewardship;
6. promoting the efficient use of resources
and reducing (and where possible
eliminating) waste through recycling and
pursuing opportunities to reuse waste;
7. ensuring the proper handling and
disposal of all waste;
8. assessing the environmental condition
of property interests acquired by
Commercialbank and appropriately
addressing the environmental impacts
caused by these properties;
9. supporting research and development
of programmes and technologies
aimed at minimizing the environmental
impacts of company operations; and
10.notifying the Board of Directors of any
pertinent environmental issues.
Commercialbank is committed to:
1. ensuring the health, safety, security and
welfare of all our employees whilst at
work;
2. ensuring that visitors to our premises are
not exposed to risks of their health and
safety;
3. identifying hazards, assessing risks and
managing those risks;
4. maintaining arrangements for ensuring
the safe use, handling, storage and
transport of articles and substances; and
5. encouraging the development and
maintenance of a positive attitude
towards health and safety throughout
Commercialbank.
Pursuant to this, Commercialbank
has in place a comprehensive Fire
Health and Safety policy and provides
extensive Medical Insurance through
an internationally recognized
insurance provider for the benefit of all
(permanent) staff.
Report of the Auditors
Independent Auditors’ Report to the
Shareholders of The Commercial Bank of Qatar (Q.S.C.)
Report on the Consolidated Financial
Statements
We have audited the accompanying
consolidated financial statements of The
Commercial Bank of Qatar (Q.S.C.) (the
“Bank”) and its subsidiaries (the “Group”),
which comprise the consolidated balance
sheet as at 31 December 2008, and
the consolidated statement of income,
consolidated statement of changes in equity
and consolidated statement of cash flows
for the year then ended, and a summary
of significant accounting policies and other
explanatory notes. The consolidated financial
statements of the Group for the year ended
31 December 2007 were audited by another
auditor, whose report dated 12 February
2008, expressed an unqualified audit opinion
on those statements.
Director’s Responsibility for the
Financial Statements
Directors are responsible for the preparation
and fair presentation of these financial
statements in accordance with International
Financial Reporting Standards and the
applicable provisions of Qatar Central Bank
regulations. This responsibility includes:
designing, implementing and maintaining
internal controls relevant to the preparation
and fair presentation of financial statements
that are free from material misstatement,
whether due to fraud or error; selecting and
applying appropriate accounting policies;
and making accounting estimates that are
reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion
on these consolidated financial statements
based on our audit. We conducted our audit
in accordance with International Standards
on Auditing. Those standards require that we
comply with ethical requirements and plan
and perform the audit to obtain reasonable
assurance whether the financial statements
are free from material misstatement.
An audit involves performing procedures to
obtain audit evidence about the amounts
and disclosures in the financial statements.
The procedures selected depend on the
auditors’ judgment, including the assessment
of the risks of material misstatement of the
financial statements, whether due to fraud
or error. In making those risk assessments,
the auditor considers internal control
relevant to the entity’s preparation and fair
presentation of the financial statements in
order to design audit procedures that are
appropriate in the circumstances, but not
for the purpose of expressing an opinion
on the effectiveness of the entity’s internal
control. An audit also includes evaluating
the appropriateness of accounting policies
used and the reasonableness of accounting
estimates made by management, as well as
evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements present fairly, in all material
respects, the financial position of the Group
as of 31 December 2008, and of its financial
performance and its cash flows for the year
then ended in accordance with International
Financial Reporting Standards and the
applicable provisions of Qatar Central Bank
regulations.
Report on Other Legal and Regulatory
Requirements
We have obtained all the information and
explanations which we considered necessary
for the purpose of our audit. We further
confirm that the financial information
included in the Annual Report of the Board
of Directors is in agreement with the books
and records of the Group and that we are
not aware of any contravention by the Bank
of its Articles of Association, the applicable
provisions of Qatar Central Bank Law No.33
of 2006 and amendments thereto and of
the Qatar Commercial Companies Law No. 5
of 2002 during the financial year that would
materially affect its activities or its financial
position as at 31 December 2008.
Firas Qoussous
Ernst & Young
Qatar Auditors’ Registry No. 236
20 January 2009
Doha
State of Qatar
29
Shari’ah Supervisory
Board Report
30
For the period ending 31 December
2008.
To the Shareholder of Al Safa Islamic Banking
– (CBQ)
As per the approved Shari’ah mandate
agreed with the management of Al Safa
Islamic Banking, we are required to report the
following:
We have reviewed the principles followed and
contracts related to transactions and activities
undertaken by Al Safa Islamic Banking - CBQ
(the Bank), during the period on which we
carried out the necessary review in order to
express an opinion as to whether the Bank
has undertaken its activities in accordance
with Islamic Shari’ah principle and specific
Fatwas, resolutions and guidelines issued by
us.
Abdul Aziz Al Khulaifi
SSB Chairman
It is the responsibility of the Bank’s
management to ensure that the Bank
operates in accordance with the rules
and principles of Islamic Shari’ah. Our
responsibility is restricted to expressing an
independent opinion based on our review
of the Bank’s operations and to report our
opinion to you.
Our review included examination of the
documentation and procedures adopted by
the Bank on a sample basis that covered all
types of the Bank’s transactions.
Through the Executive Committee of the
Shari’ah Supervisory Board, we have planned
and executed our review in a manner that
allowed us to obtain all information and
explanations that we deemed necessary to
provide us with sufficient evidential matter
giving reasonable assurance that the Bank did
not violate any of the rules or principles of
Islamic Shari’ah.
Dr. Mohamed Ali Elgari
SSB Member
In our opinion:
A. The contracts, operations executed by
the Bank during the period ended 31
December 2008 that were reviewed,
were carried out in accordance with the
rules and principles of Islamic Shari’ah,
and appropriate steps have been taken to
address any reservations in their regards.
B. The distribution of profits and losses on
the saving and investments accounts
complies with the basis approved by us
in accordance with the Islamic Shari’ah
principles.
C. Since the management of the Bank is
not authorized to pay Zakat directly, the
responsibility of paying Zakat is that of the
Shareholders.
We ask Almighty Allah, Most Gracious, to
grant us guidance and righteousness.
The Commercial Bank
of Qatar (Q.S.C.)
2008
Consolidated Balance Sheet
As at 31 December 2008
32
ASSETS
Figures in thousand Qatar Riyals
Notes
2008
2007
Cash and balances with central bank
6
3,015,283
2,248,858
Due from banks and financial institutions
7
14,315,648
9,019,483
Loans, advances and financing activities for customers
8
33,897,513
25,021,487
Financial investments
9
4,774,963
4,664,672
Investments in associates
10
3,641,486
3,329,900
Property and equipment
11
1,136,073
721,393
Other assets
12
520,785
391,486
61,301,751
45,397,279
Due to banks and financial institutions
13
10,922,869
4,907,743
Customer deposits
14
29,337,943
24,656,692
Borrowing under repurchase agreements
781,226
-
Other borrowed funds
15
6,096,091
7,623,105
Other liabilities
16
1,337,246
872,900
Total liabilities excluding unrestricted investment accounts
48,475,375
38,060,440
17
2,847,931
1,109,022
Total liabilities including unrestricted investment accounts
51,323,306
39,169,462
Total assets
LIABILITIES
Unrestricted investment accounts
EQUITY
Share capital
18
2,062,053
1,401,579
Legal reserve
18
5,923,731
2,915,602
General reserve
18
26,500
26,500
Cumulative changes in fair value
18
(442,857)
188,426
Risk reserve
18
638,300
346,300
Other reserves
18
325,933
171,903
Proposed dividend
18
1,443,437
560,632
Proposed bonus shares
18
-
420,474
Retained earnings
1,348
196,401
Total equity
9,978,445
6,227,817
61,301,751
45,397,279
Total liabilities and equity
The consolidated financial statements have been approved by the board of directors and signed on their behalf by the following on 20 January 2009.
HE Abdullah bin Khalifa Al Attiyah
Mr. A C Stevens
Chairman
Managing Director
The attached notes 1 to 34 form part of these consolidated financial statements.
Consolidated Statement of Income
Year ended 31 December 2008
Notes
2008
2007
Interest income
19
2,692,416 2,244,106
Interest expense 20
(1,474,808)
(1,368,079)
Net interest income
1,217,608 876,027
21
180,896 83,664
Less unrestricted investment account holders’ share of profit
(106,413)
(30,625)
74,483 53,039
Income from Islamic financing and investment activities
Net income from Islamic financing and investment activities
22
1,040,015 733,275
Fee and commission expense
(96,564)
(67,058)
Net fee and commission income
943,451 666,217
Dividend income
39,108 38,943
Fee and commission income
Net gains from dealing in foreign currencies
23
130,925
83,754
Profit from financial investments
24
276,030
205,772
Other operating income
25
87,024
18,860
533,087
347,329
2,768,629
1,942,612
26
(682,137)
(487,925)
Depreciation
11
(67,973)
(52,492)
Recoveries of impairment losses on loans to financial institutions, net
2,466 2,240
8
(61,278)
(50,274)
(464,850)
(85,904)
Impairment losses on loans and advances to customers, net
-
(11,034)
Total operating expenses and impairment losses
(1,273,772)
(685,389)
Profit before share of associates’ result 1,494,857
1,257,223
10
207,585 133,492
Net profit for the year 1,702,442 1,390,715
27
8.76
7.63
Share of result of associates
Basic/diluted earnings per share (QAR)
33
Consolidated Statement
of Changes in Equity
31 December 2008
34
Balance at 1 January 2007
Share
Capital
Legal
Reserve
1,401,579 2,915,499 Net movement in fair value reserve
-
-
Share of changes recognised directly in Associates’ equity
-
-
Adjustment for exchange rate fluctuations -
-
Total income and expense for the year directly recognised in equity
-
-
Net profit for the year
-
-
Total income and expense for the year -
-
Dividend received from associates for 2006 transferred to retained earnings
-
-
Statutory reserve for Global Card Services
-
103 Share of result of associates
-
-
Risk reserve as per QCB regulation -
-
Dividends for the year 2006
-
-
Proposed cash dividend -
-
Proposed bonus shares -
-
1,401,579 2,915,602 Net movement in fair value reserve -
-
Contribution for social responsibilities
-
-
Share of changes recognised directly in Associates’ equity
-
-
Adjustment for exchange rate fluctuations -
-
Total income and expense for the year directly recognised in equity
-
-
-
-
Total income and expense for the year -
-
Dividend received from associates for 2007 transferred to retained earnings
-
-
Statutory reserve for Global Card Services
-
28 Share of result of associates -
-
Risk reserve as per QCB regulation
-
-
Balance at 31 December 2007
Dividend for the year 2007
-
-
Bonus share for the year 2007
420,474 -
Increase in share capital (note 18)
240,000 -
Increase in legal reserve (note 18)
-
3,008,101 Proposed cash dividend - Balance at 31 December 2008
2,062,053 5,923,731 Figures in thousand Qatar Riyals
Retained Earnings
General
Reserve
Cumulative changes
in Fair Value
Risk
Reserve
Other
Reserves
Proposed
Dividend
Proposed
Bonus Shares
Other
Total
26,500 1,624 176,200 84,549 981,106
-
44,349
5,631,406
-
128,792
-
-
-
-
-
128,792
-
57,956 -
-
-
-
-
57,956
-
54 -
-
-
-
-
54
-
186,802 -
-
-
-
-
186,802
-
-
-
-
-
-
1,390,715 1,390,715
-
186,802 -
-
-
-
1,390,715 1,577,517
-
-
-
(46,138)
-
-
46,138 -
-
-
-
-
-
-
(103)
-
-
-
-
133,492 -
-
(133,492)
-
-
-
170,100 -
-
-
(170,100)
-
-
-
-
-
(981,106)
-
-
(981,106)
-
-
-
-
560,632 -
(560,632)
-
-
-
-
-
-
420,474 (420,474)
-
26,500 188,426 346,300 171,903 560,632 420,474 196,401 6,227,817
-
(531,877)
-
-
- -
(531,877)
-
-
-
-
- (8,000)
(8,000)
-
(99,366)
-
-
-
-
-
(99,366)
-
(40)
-
-
-
-
-
(40)
-
(631,283)
-
-
-
-
(8,000)
(639,283)
-
-
-
-
-
-
1,702,442 1,702,442
-
(631,283)
-
-
-
-
1,694,442 1,063,159
-
-
-
(53,555)
-
-
53,555 -
-
-
-
-
-
-
(28)
-
-
-
-
207,585 -
-
(207,585)
-
-
-
292,000 -
-
-
(292,000)
-
-
-
-
-
(560,632)
-
-
(560,632)
-
-
-
-
-
(420,474)
-
-
-
-
-
-
-
-
-
240,000
-
-
-
-
-
-
-
3,008,101
-
-
-
-
1,443,437 (1,443,437)
-
26,500 (442,857)
638,300 325,933 1,348 9,978,445
1,443,437 -
35
Consolidated Statement
of Cash Flows
36
Notes
2008
2007
1,702,442 1,390,715
52,492
Cash flows from operating activities
Adjustments for:
67,973
15
9,048 6,613
Impairment losses on loans and advances, net
58,812 48,034
464,850 85,904
-
11,034
Depreciation
Amortization of transaction cost
Profit from sale of assets
(9,792)
-
10
(207,585)
(133,492)
Share of results of associates
(276,030)
(205,772)
Profit before changes in operating assets and liabilities
1,809,718 1,255,528
Net (increase) decrease in operating assets
(417,604)
(672,605)
(8,947,763)
(7,709,773)
Other assets
(133,749)
(69,266)
731,226 (314,000)
8,587,457
Net increase (decrease) in operating liabilities
Customers’ deposits
6,420,160 Other liabilities
457,709 154,836
Net cash (used in) from operating activities (80,303)
1,232,177
(1,972,513)
(1,844,980)
Investment in associates
(284,920)
(1,899,882)
Cash flows from investing activities
Purchase of financial investments
Dividends received from associate
82,646 46,138
Proceeds from sale of financial investments
1,141,472 1,738,862
(216,073)
11
(482,893)
Proceeds from sale of assets
26,960
-
Net cash used in investing activities
(1,489,248)
(2,175,935)
Purchase of property and equipment
Cash flows from financing activities
Proceeds from other borrowed funds
15
1,375,938
5,264,404
Repayment of other borrowed funds
15
(2,912,000)
(1,783,600)
Net proceeds from issue of shares 18
3,248,101
-
Dividends paid
(560,632)
(981,106)
Net cash from financing activities
1,151,407
2,499,698
1,555,940
Net (decrease) increase in cash and cash equivalents during the year (418,144)
Effects of foreign exchange fluctuation
40 54
Cash and cash equivalents at 1 January
32
4,687,272
3,131,278
Cash and cash equivalents at 31 December
32
4,269,168
4,687,272
Notes to the Consolidated
31 December 2008
1.
CORPORATE INFORMATION
The Commercial Bank of Qatar (Q.S.C.)(“the Bank”) was incorporated in the State of Qatar in 1975 as a public shareholding company under Emiri Decree
No.73 of 1974. The Bank and its subsidiaries (together the “Group”) are engaged in conventional commercial banking, Islamic banking services and
credit card business and operates through its Head Office and branches established in the State of Qatar. The Bank also acts as a holding company for its
subsidiaries engaged in credit card business in the Sultanate of Oman and Egypt.
2.
SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
The consolidated financial statements have been prepared on historical cost basis, except for available-for-sale investments, derivative financial
instruments and financial assets held at fair value through profit or loss, that have been measured at fair value. The consolidated financial statements are
presented in Qatar Riyals (QAR), and all values are rounded to the nearest QAR thousand except when otherwise indicated.
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the applicable
provisions of Qatar Central Bank regulations.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group as at and for the year ended 31 December each year. The financial
statements of the subsidiaries are prepared for the same reporting year as the Bank, using consistent accounting policies.
All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated in full on
consolidation.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved where the Group has the power to
govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of
during the year are included in the consolidated income statement from the date of acquisition or up to the date of disposal, as appropriate.
The consolidated financial statements of the Group include the financial statements of the Bank and its subsidiaries (listed below) fully owned by the
Bank:
Name of subsidiaries
Country of Incorporation
Share Capital
Orient 1 Limited
Bermuda
US$ 20,000,000
Diners Club Services Egypt SAE
Egypt
LE 3,700,000
Global Card Services LLC
Sultanate of Oman
OMR 500,000
2.2 Changes in accounting policies and disclosures
The accounting policies adopted are consistent with those of the previous financial year.
IASB Standards and interpretations issued but not adopted The following IASB standards and interpretations have been issued but are not yet mandatory, and have not been early adopted by the Group:
IFRS 2 Share-based Payment (Revised) effective 1 January 2009
IFRS 8 Operating Segments effective 1 January 2009
IAS 23 Borrowing Costs (Revised) effective 1 January 2009
IAS 1 Presentation of Financial Statements (Revised) effective 1 January 2009
The application of the above standards and interpretations is not expected to have a material impact on the consolidated financial statements of the
Group.
37
Financial Statements (continued)
31 December 2008
38
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3 Summary of significant accounting policies
Investment in Associates
The Group’s investment in its associates is accounted for using the equity method of accounting. An associate is an entity in which the Group has
significant influence but not control.
Under the equity method, the investment in the associates is carried in the balance sheet at cost plus post acquisition changes in the Group’s share of
net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is not amortised or separately
tested for impairment.
The income statement reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity
of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised
gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.
The financial statements of the associates are prepared for the same reporting period as the parent company. Where necessary, adjustments are made
to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on the Group’s investment in its
associates. The Group determines at each balance sheet date whether there is any objective evidence that the investment in the associate is impaired. If
this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value
and recognises the amount in the income statement.
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment
that are subject to risks and returns different from those of segments operating in other economic environments.
Foreign currency translation
(a)
Functional and presentation currency
The consolidated financial statements are presented in Qatar Riyals, which is Group’s functional and presentation currency. Each entity in the
group determines its own functional currency and items included in the financial statements of each entity are measured using that functional
currency.
(b)
Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance
sheet date. All differences are taken to the income statement.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of
the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when
the fair value was determined. The gain and losses on revaluation of foreign currency non-monetary available-for-sale investments are recognised
in equity.
(c)
Group companies
As at the reporting date, the assets and liabilities of subsidiaries are translated into the Group’s presentation currency at the rate of exchange
ruling at the balance sheet date, and their income statements are translated at the weighted average exchange rates for the year. Exchange
differences arising on translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative
amount recognised in equity relating to that particular foreign operation is recognised in the income statement.
31 December 2008
2.
Financial Instruments – initial recognition and subsequent measurement
The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-tomaturity investments; and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired.
Management determines the classification of its investments at initial recognition.
(a)
Financial assets at fair value through profit or loss (“FVPL”)
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A
financial asset is classified as held for trading (“HFT”) if it is acquired or incurred principally for the purpose of selling or repurchasing in the near
term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual
pattern of short-term profit-taking. These investments are subsequently re-measured at fair value, and all related unrealized gains and losses are
included in the income statement. Derivatives are also categorised as held for trading unless they are designated as hedging instruments.
(b)
Loans and receivables (“LaR”)
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:
(a) those that the entity intends to sell immediately or in the short term, which are classified as held for trading, and those that the entity upon
initial recognition designates as at fair value through profit or loss; (b) those that the entity upon initial recognition designates as available for sale;
or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.
(c)
Held-to-maturity financial assets (“HTM”)
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s
management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-tomaturity assets, the entire category would be reclassified as available for sale.
(d)
Available-for-sale financial assets (“AFS”)
Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity
or changes in interest rates, exchange rates or equity prices.
Regular purchases and sales of financial assets at fair value through profit or loss, held to maturity and available-for-sale are recognised at the trade
date. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.
Financial assets carried at fair value through profit and loss are initially recognised at fair value, and transaction costs are expensed in the income
statement.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables
and held-to-maturity investments are carried at amortised cost using the effective interest method. Islamic financing such as Murabaha, Ijara and
Musawama are stated at their gross principal amount less any amount received, provision for impairment and unearned profit. Gains and losses
arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the income statement in
the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in
equity, until the financial asset is derecognised or impaired. At this time, the cumulative gain or loss previously recognised in equity is recognised
in income statement. However, interest or profit calculated using the effective interest method and foreign currency gains and losses on monetary
assets classified as available- for-sale are recognised in the income statement.
Derecognition of financial assets and financial liabilities
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred
substantially all risks and rewards of ownership. Financial liabilities are derecognised when they are extinguished – that is, when the obligation is
discharged, cancelled or expires.
39
31 December 2008
40
2.
Fair values
The fair values of quoted investments in active markets are based on current bid prices. If there is no active market for a financial asset, the Group
establishes fair value using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by market participants.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the
recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair
value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including
discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities
when fair value is negative.
The Group’s derivatives trading instruments includes forward contracts, foreign exchange swaps and interest rate swaps. The Group sells these
derivatives to customers in order to enable them to transfer, modify or reduce current and future risks. These derivative instruments are fair valued as at
the balance sheet date and the corresponding fair value changes is taken to the statement of income.
Repurchase agreements
Securities sold under agreements to repurchase at a specified future date (‘repos’) are not derecognised from the balance sheet. The corresponding
cash received, including accrued interest, is recognised on the balance sheet as ‘Borrowings under repurchase agreements’, reflecting its economic
substance as a loan to the Group. The differences between the sale and repurchase prices are treated as interest expense and are accrued over the life
of the agreement using the effective interest rate method.
Revenue recognition
Interest income and expense
Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or designated at fair value
through profit or loss, are recognised within ‘interest income’ and ‘interest expense’ in the income statement using the effective interest method.
Income from financing and investment contracts under Islamic banking principles are recognised within ‘income from Islamic finance and investment
activities’ in the income statement using a method that is analogous to the effective ‘yield’ rate.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using
the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Fees and commission income
Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are
likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan.
Loan syndication fees are recognised as revenue when the syndication has been completed and the Group has retained no part of the loan package
for itself or has retained a part at the same effective interest rate as the other participants. Portfolio and other management advisory and service fees
are recognised based on the applicable service contracts, usually on a time-proportion basis. Asset management fees related to investment funds are
recognised rateably over the period in which the service is provided. Performance linked fees or fee components are recognised when the performance
criteria are fulfilled.
Dividend income
Dividends are recognised in the income statement when the entity’s right to receive payment is established.
31 December 2008
2.
Impairment of financial assets
(a)
Financial assets carried at amortised cost
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired.
A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on
the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:
• Delinquency in contractual payments of principal or interest;
• Cash flow difficulties experienced by the borrower;
• Breach of loan covenants or conditions;
• Initiation of bankruptcy proceedings;
• Deterioration of the borrower’s competitive position;
• Deterioration in the value of collateral; and
• Downgrading below investment grade level.
The estimated period between a loss occurring and its identification is determined by local management for each identified portfolio. In general,
the periods used vary between three months and 12 months; in exceptional cases, longer periods are warranted.
The Group first assesses whether objective evidence of impairment exists individually for financial assets that are significant, and individually or
collectively for financial assets that are not significant. If the Group determines that no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to
be recognised are not included in a collective assessment of impairment.
The amount of loan loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The resulting
provision is not materially different from that resulting from the application of the Qatar Central Bank guidelines.The carrying amount of the
asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan or heldto-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate
determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an
observable market price.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result
from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those
characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all
amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash
flows of the assets in the Group and historical loss experience for assets with credit risk characteristics similar to those in the Group. Historical loss
experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which
the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary
procedures have been completed and the amount of the loss has been determined. If, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised
impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement in impairment
charge for loans and advances.
41
31 December 2008
42
2.
(b)
Financial assets classified as available-for-sale
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired.
In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is
considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss
measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously
recognised in income statement is removed from equity and recognised in the income statement. Impairment losses recognised in the income
statement on equity instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument
classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised
in income statement, the impairment loss is reversed through the income statement.
(c)
Renegotiated loans
Renegotiated loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated
are no longer considered to be past due but are treated as new loans. In subsequent years, the asset is considered to be past due and disclosed
only if renegotiated.
Intangible Assets
(a)
Intangible assets identified during acquisitions
Intangible assets identified upon acquisition of subsidiaries or associated companies are included at fair value and amortised over the useful life of
the intangible assets.
(b)
Franchise rights
Franchise rights have a finite useful life and are carried at cost less accumulated amortisation and impairment if any. Amortisation is calculated
using the straight-line method to allocate the cost of franchise over the franchise period. The Group annually carries out impairment tests on the
carrying value of the franchise rights.
Land and buildings comprise mainly branches and offices. All property and equipment is stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance
are charged to other operating expenses during the financial period in which they are incurred.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to their residual values over their
estimated useful lives, as follows:
• Buildings
• Furniture and equipment
• Motor vehicles
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written
down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is
the higher of the asset’s fair value less costs to sell and value in use.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in other operating income/expenses in
the income statement.
20 years,
3 - 8 years,
5 years.
31 December 2008
2.
Properties acquired against settlement of customers’ debts
Properties acquired against settlement of customers’ debts are stated in the Bank’s balance sheet under the item “Other assets” at their acquisition
value net of any required provision for impairment.
According to Qatar Central Bank instructions, the Bank should dispose of any land and properties acquired against settlement of debts within a period
not exceeding three years from the date of acquisition although this period can be extended after obtaining approval from Qatar Central Bank.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment
loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at each reporting date.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances maturing within three months’ from the date of acquisition,
including cash and non-restricted balances with Qatar Central Bank.
Provisions
Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than
not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.
The Group creates provisions charging the income statement for any potential claim or for any expected impairment of assets, taking into consideration
the value of the potential claim or expected impairment and its likelihood.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a rate that reflects current
market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is
recognised as interest expense.
Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a
specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks,
financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given. Subsequent to initial
recognition, the Group’s liabilities under such guarantees are measured at the higher of the initial measurement, less amortisation calculated to
recognise in the income statement the fee income earned on a straight line basis over the life of the guarantee and the best estimate of the expenditure
required to settle any financial obligation arising at the balance sheet date. These estimates are determined based on experience of similar transactions
and history of past losses, supplemented by the judgment of Management.
Any increase in the liability relating to guarantees is taken to the income statement.
Employee benefits
The Group makes provision for end of service benefits payable to employees on the basis of the individual’s period of service at the year-end in
accordance with the employment policy of the Group and the provisions in Qatar Labour Law. This provision is included in other provisions as part of
other liabilities in the balance sheet. The expected costs of these benefits are accrued over the period of employment.
Also the Group provides for its contribution to the retirement fund for Qatari employees in accordance with the retirement law, and includes the
resulting charge within the personnel cost under the general administration expenses in the statement of income.
43
31 December 2008
44
Borrowings
Borrowings are recognised initially at fair value, (being their issue proceeds net of transaction costs incurred). Borrowings are subsequently stated at
amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the income statement over the
period of the borrowings using the effective interest method.
Fiduciary activities
The Group acts as fund manager and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, corporates and
other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group.
Off-balance sheet
Off-balance sheet items include Group’s obligations with respect to foreign exchange forwards, interest rates agreements and others. These do not
constitute actual assets or liabilities at the balance sheet date except for assets and obligations relating to fair value gain or loss on derivatives.
3.
FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT
3.1 Financial instruments
Definition and classification
Financial instruments comprise the Group’s financial assets and liabilities. Financial assets include cash balances and balances with Central bank, due
from banks and financial institutions, loans and advances, financial investments and financial liabilities include customer deposits, borrowings under
repurchase agreements and due to banks and other financial institutions and other borrowed funds. Financial instruments also include rights and
commitments included in off- balance sheet items.
Note 2 describes the accounting policies followed by the Group in respect of recognition and measurement of the key financial instruments and their
related income and expense.
Risk management
The Group derives its revenue from assuming and managing customer risk for profit. Through a robust governance structure, risk and return are
evaluated to produce sustainable revenue, to reduce earnings volatility and increase shareholder value. The most important types of risk are credit risk,
liquidity risk, market risk and other operational risk.
Credit risk reflects the possible inability of a customer to meet his/her repayment or delivery obligations. Market risk, which also includes foreign
currency, interest rate risks and other price risks, is the risk of fluctuation in asset and commodity values caused by changes in market prices and yields.
Liquidity risk results in the inability to accommodate liability maturities and withdrawals, fund asset growth or otherwise meet contractual obligations
at reasonable market rates. Operational risk is the potential for loss resulting from events involving people, processes, technology, legal issues, external
events or execution or regulatory issues.
The Group’s Market Risk and Structural Risk Management policies envisage the use of interest rate derivative contracts and foreign exchange derivative
contracts as part of its asset and liability management process.
Risk Committees
The governance structure of the Group is headed by the Board of Directors. The Board of Directors evaluates risk utilising the Group Chief Executive
Officer and the following Board and Management committees:
1.
Audit and Risk Committee is a Board committee responsible for all aspects of Enterprise Risk Management including but not restricted to credit
risk, market risk, and operational risk. This committee sets the policy on all risk issues and maintains oversight of all Group risks through the
Commercialbank Risk Committee.
2.
Policy and Strategy Committee is a Board committee which is responsible for all policies and strategies of the business.
3.
Executive Committee is a Board committee responsible for evaluating and granting credit facilities and to approve the Group’s investment
activities within authorized limits as per Qatar Central Bank and Board guidelines.
31 December 2008
3.
FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT (continued)
Risk Committees (continued)
4. Credit Committee is the highest management level authority on all counterparty risk exposures product programmes, associated expenditure
programmes thereunder and underwriting exposures on syndications and securities transactions.
5.
Commercialbank Risk Committee is a management committee which is the highest management authority on all risk related issues at the Group
and its subsidiaries and affiliates in which it has strategic investments.
6.
Asset Liability Committee (ALCO) is a management committee which is a decision making body for developing policies relating to all asset and
liability management (ALM) matters.
7.
Shari’ah Supervisory Board is an independent committee comprising three renowned external Islamic Scholars and Specialists in Islamic banking,
to ensure that the activities, products and transactions of the Islamic branches are in compliance with Islamic principles (Shari’ah). The Shari’ah
Board discharge their responsibilities by conducting periodical audits. All new Islamic products require Shari’ah board pre-approval.
45
3.2 Credit Risk
The Group takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Group by failing to discharge an
obligation. Credit risk is the most important risk for the Group’s business; management therefore carefully manages its exposure to credit risk. Credit
risk is attributed to both on-balance sheet financial instruments such as loans, overdrafts, debt securities and other bills, Islamic finances, investments,
and acceptances and credit equivalent amounts related to off-balance sheet financial instruments. The Group’s approach to credit risk management
preserves the independence and integrity of risk assessment, while being integrated into the business management processes. Policies and procedures,
which are communicated throughout the organisation, guide the day-to-day management of credit exposure and remain an integral part of the business
culture. The goal of credit risk management is to evaluate and manage credit risk in order to further enhance this strong credit culture.
3.2.1 Credit Risk Management
(a)
Loans and Advances
The Group has significantly enhanced its loan mix. This improvement is being achieved through a strategy of reducing exposure to non-core
client relationships while increasing the size of the consumer portfolio comprising of consumer loans, vehicle loans, credit cards and residential
mortgages, which have historically recorded very low loss rates. In measuring credit risk of loan and advances to customers and to banks at a
counterparty level, the Group reflects three components (i) the ‘probability of default’ by the client or counterparty on its contractual obligations;
(ii) current exposures to the counterparty and its likely future development, from which the Group derive the ‘exposure at default’; and (iii) the
likely recovery ratio on the defaulted obligations (the ‘loss given default’).
(i)
The Group assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of
counterparty. They have been developed internally and combine statistical analysis with credit officer judgment and are validated, where
appropriate, by comparison with externally available data. Clients of the Group are segmented based on a 10 point scale into five rating
classes. The Group’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means
that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept
under review and upgraded as necessary. The Group regularly validates the performance of the rating and their predictive power with regard
to default events.
Group’s rating
Description of the grade
External rating: Standard & Poor’s equivalent
Grade A
Low risk – excellent
AAA, AA+, AA- A+, A-
Grade B
Standard/Satisfactory risk
BBB+, BBB, BBB-, B+, BB, BB-, B+, B, B-
Grade C
Sub-standard – watch
CCC to C
Grade D
Doubtful
D
Grade E
Bad debts
E
Group’s internal ratings scale and mapping of external ratings
31 December 2008
46
3.
(a)
Loans and Advances (continued)
The ratings of the major rating agency shown in the table above are mapped to Group’s rating grades based on the long-term average
default rates for each external grade. The Group uses the external ratings where available to benchmark internal credit risk assessment.
Observed defaults per rating category vary year on year, especially over an economic cycle.
(ii) Exposure at default is based on the amounts the Group expects to be owed at the time of default. For example, for a loan this is the face
value. For a commitment, the Group includes any amount already drawn plus the further amount that may have been drawn by the time of
default, should it occur.
(iii) Loss given default or loss severity represents the Group’s expectation of the extent of loss on a claim should default occur. It is expressed as
percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or
other credit mitigation.
(b)
Debt securities and other bills
For debt securities and other bills, external rating such as Standard & Poor’s rating or their equivalents are used by Group Treasury for managing of
the credit risk exposures. The investments in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a
readily available source to meet the funding requirement at the same time.
3.2.2 Risk limit control and mitigation policies
(a)
Portfolio Diversification
Portfolio diversification is an overriding principle, therefore, the credit policies are structured to ensure that the Group is not over exposed to a
given client, industry sector or geographic area. To avoid excessive losses if any single counter-party is unable to fulfil its payment obligations,
large exposure limits have been established per credit policy. Limits are also in place to manage exposures to a particular country or sector. These
risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary.
(b)
Collateral
In order to proactively respond to credit deterioration the Group employs a range of policies and practices to mitigate credit risk. The most
traditional of these is the taking of security for funds advances, which is common practice. The Group implements guidelines on the acceptability
of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:
•
•
•
Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In
addition, in order to minimise the credit loss the Group will seek additional collateral from the counterparty as soon as impairment indicators are
noticed for the relevant individual loans and advances.
Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities,
treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured
by portfolios of financial instruments.
Islamic banking division manages its credit risk exposure by ensuring that its customer’s meet the minimum credit standards as defined by the
Credit Risk Management (CRM) process of the Group.
Mortgages over residential properties;
Charges over business assets such as premises, inventory and accounts receivable;
Charges over financial instruments such as debt securities and equities.
31 December 2008
3.
47
(c)
Credit-related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit
carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Group on behalf of a
customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions – are collateralised
by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit.
With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused
commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are
contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments because
longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
3.2.3 Maximum exposure to credit risk before collateral held or other credit enhancements
The table below shows the maximum exposure to credit risk for the components of the balance sheet including derivatives.The maximum exposure is
shown gross, before the effect of any mitigation through the use of any collateral held or other credit enhancements.
Credit risk exposures relating to on-balance sheet assets are as follows:
Loans, advances and financing for customers:
Retail loans
Commercial and Corporate loans
2008
2007
14,315,648
9,019,483
5,488,819
4,299,485
25,988,143 19,802,449
Islamic Finances 2,420,551 919,553
3,014,253 3,295,921
Other assets
418,300 319,735
On balance sheet total as at 31 December
51,645,714 37,656,626
Credit risk exposures relating to off-balance sheet items are as follows:
Acceptances
2,388,401 3,113,752
Guarantees 14,488,472 13,109,009
Letters of Credit 5,335,915 3,975,836
Unutilised credit facilities granted to customers 5,653,694 2,890,846
Off balance sheet total as at 31 December
27,866,482 23,089,443
Total
79,512,196
60,746,069
31 December 2008
48
3.
Risk concentration for maximum exposure to credit risk by Sector
An industry sector analysis of the group’s financial assets, before taking into account collateral held or other credit enhancements, is as follows:
2008
Gross Maximum
Exposure
Funded Government
2,629,162
2,658,793
Government institutions & semi-government
3,246,072
2,707,411
Industry
1,245,591
547,900
Commercial 4,767,946
3,923,565
2007
Gross Maximum
Exposure
Financial and services
18,102,288
10,961,801
Contracting 3,404,813
2,396,691
Real estate 5,968,583
3,332,581
Consumption
7,092,719
6,259,683
Others sectors
Total funded
5,188,540
4,868,201
51,645,714
37,656,626
Un-funded Government institutions & semi-government
Financial
640,339
149,928
6,373,273
6,053,520
Industry and commercial
20,852,870
16,885,995
Total un-funded
27,866,482
23,089,443
Total
79,512,196
60,746,069
Total maximum exposure net of collateral is QAR 55 billion (2007: QAR 44 billion).
The main types of collateral obtained are cash, mortgages, equity and debt securities, Government guarantees and other eligible securities.
31 December 2008
3.
49
3.2.4 Credit quality of financial assets with credit risk exposure
(a)
The following table sets out the credit qualities of its loans and advances portfolio as per the Group’s internal ratings.
Neither past due
nor impaired
Past due but
not impaired
12,324,666
-
21,020,111
Impaired
Gross Total
31 December 2008
Risk Grading
A: Low risk - excellent
B: Standard/satisfactory risk
C: Sub-standard - watch
- D: Doubtful
- E: Bad debts
Gross Less : allowance for impairment Net
31 December 2007
-
12,324,666
201,562
- 21,221,673
147,705 - 147,705
200,602 - 200,602
289,592 289,592
33,344,777 - 549,869 - 289,592 34,184,238
-
-
286,725
286,725
33,344,777
549,869
2,867
33,897,513
Risk Grading
A: Low risk - excellent
11,454,372
8,445
-
11,462,817
B: Standard/satisfactory risk
13,247,559
122,059
-
13,369,618
C: Sub-standard - watch
-
87,385
-
87,385
D: Doubtful
-
95,193
-
95,193
E: Bad debts
-
-
208,749
208,749
Gross 24,701,931
313,082
208,749
25,223,762
-
-
202,275
202,275
24,701,931 313,082 6,474 25,021,487
Less : allowance for impairment
Net
b)
Exposures to due from banks and financial institutions are either of Low Risk (grade A) or Standard risk (grade B).
There are no past due or impaired balances in the portfolio as at 31 Dec 2008 (2007: QAR 3.7 million).
31 December 2008
50
3.
3.2.4 Credit quality of financial assets with credit risk exposure (continued)
c)
2008
2007
Held to maturity
2,481,162 2,473,357
Available for sale
764,696 834,240
Less allowance for impairment
Total
(231,605)
(11,676)
3,014,253
3,295,921
Exposures to held to maturity are mainly Qatari Government bonds.
(d)
Loans, advances and financing to customers which are past due but not impaired
Loans and advances to customer less than 180 days past due are not considered impaired, unless other information is available to indicate the
contrary. Gross amount of loans and advances by class to customers that were past due but not impaired were as follows:
Conventional
Al Safa Islamic
2008
Total
2007
Total
Past due upto 30 days 125,756 10,605 136,361
109,441
Past due 31 - 60 days 171,101 67 171,168
59,596
Past due 61 - 90 days 40,471 184 40,655
45,559
Past due 91 -180 days 164,278 37,407 201,685
98,486
Total
501,606 48,263 549,869 313,082
(e)
Impaired loans, advances and financing to customer
Impairment is identified by individual assessment of each loan as per local regulators’ regulations. The impaired loans and advances to customers
before taking into consideration the cash flows from collateral held is QAR 290 million ( 2007: QAR 209 million). Breakdown of the gross amount of
impaired loans by business segment are as follows: Figures in thousand Qatar Riyals
2008
Individually impaired loans
- Conventional
- Islamic
(f)
286,457
2007
207,496 3,135
1,253
289,592
208,749
Loans and advances to customers renegotiated
Restructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments.
Following restructuring, a previously overdue customer account is reset to a normal status and managed together with other similar accounts.
Restructuring policies and practices are based on indicators or criteria which, in the judgment of local management, indicate that payment will most
likely continue. These policies are kept under continuous review. Renegotiated loans that would otherwise be past due or impaired totalled QAR 0.8
million (2007: QAR 1.6 million).
31 December 2008
3.
3.2.5 Repossessed collateral
During 2008 the value of repossessed collateral is insignificant (2007: nil).
3.3 Market Risk
The Group takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and
specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates
and equity prices. The Group separates exposures to market risk into trading portfolios.
The Group’s proprietary investments are managed according to the Group’s internal investment policy, which has been approved by the Board of
Directors and drafted in accordance with the Qatar Central Bank guidelines. The Group’s trading activities are conducted by Treasury and Investments
Division. These activities are subject to business lines guidelines and policies. The Group employs several techniques to measure and control activities
including sensitivity analysis and position limits. The maximum limit of the Group’s total proprietary investments (i.e. total of fair value through profit and
loss, held to maturity and available for sale investment) portfolios is restricted to 70% of the Group’s capital and reserves (Tier 1 capital). However the
individual limit for the held for trading investment portfolio is 10% of capital and reserves (Tier 1 capital) with a maximum permissible loss to carry for a
single script and for whole trading portfolio at any given time. Investment policy is reviewed by the Board of Directors annually and day to day limits are
independently monitored by the Risk Management department.
Investment decisions are driven by the investment strategy, which is developed by business line under ALCO oversight and approved by the Board.
3.3.1 Market risk measurement techniques
As part of the management of market risk, the Group undertakes various economic hedging strategies. The major measurement techniques used to
measure and control market risk are outlined below.
(a)
Value at Risk
The Group applies a ‘value at risk’ methodology “VaR” to its trading portfolios, to estimate the market risk of positions held and the maximum losses
expected, based upon a number of assumptions for various changes in market conditions. The Board sets limits on the value of risk that may be
accepted for the Group, which are monitored on a daily basis by the Group market risk division.
Objectives, limitations and assumptions of VaR Methodology
VaR is a statistically based estimate of the potential loss on the current portfolio from adverse market movements. It expresses the ‘maximum’
amount the Group might lose, but only at a certain level of confidence (99%). Therefore a specified statistical probability of 1% that actual loss could
be greater than the VaR estimate. The VaR model assumes a certain ‘holding period’ until positions can be closed (1 day). The Group’s assessment
of past movements is based on data for the past five years. The Group applies these historical daily changes in rates, prices, indices, etc. directly to its
current positions – a method known as historical simulation.
The use of this approach does not prevent losses outside of these limits in the event of more significant market movements.
As VaR constitutes an integral part of the Group’s market risk control regime, VaR limits are established by the Board annually for all trading portfolio
operations.
Stress tests
(b)
Stress tests provide an indication of the potential size of losses that could arise in extreme conditions. The stress tests carried out by Group Market
Risk include: risk factor stress testing, where stress movements are applied to each risk category; and ad hoc stress testing, which includes applying
possible stress events to specific positions or regions – for example, the stress outcome to a region following a currency peg break.
The results of the stress tests are reviewed by senior management in each business unit and by the Board of Directors. The stress testing is tailored to
the business and typically uses scenario analysis.
51
31 December 2008
52
3.
3.3.2 VaR summary
Group trading portfolio VaR by risk type
12 months to 31 December 2008
Average
High
12 months to 31 December 2007
Average
High
Low
Low
Foreign exchange risk
996 1,597 646 549 578 516
Interest rate risk 10,938 30,763 1,124 354 677 303
Equity risk
39,249 44,087 32,655 31,779 35,722 27,947
Total VaR
51,183 76,447 34,425 32,682 36,977 28,766
The increase in Interest Rate Risk VaR in 2008 as compared to 2007 mainly resulted from inclusion of Bonds in the VaR calculation amounted to QAR
328 million. The increase of VaR in 2008, especially in the Equity risk and Interest rate risk also influenced by the recent instability in the Global financial
markets. As Qatar Riyals is pegged to US dollars, balances in US dollars is not considered to represent a significant risk.
3.3.3 Foreign exchange risk
Foreign currency risk is the risk of loss that results from changes in foreign exchange rates. The Group’s exposure to foreign currency risk is limited and is
strictly controlled by the market risk and structural risk management policies established by the Group which govern the maximum trading and exposure
limits that are permitted.
On -balance sheet
Assets Liabilities Net currency position Off -balance sheet
Credit commitments (Contingent liabilities) Qatar
Riyals
US Dollars
Euro
Sterling
Pounds
Other
Currencies
Total
33,435,521 23,425,104 557,526 85,852 3,797,748 61,301,751
(33,533,239)
(27,107,631)
(538,377)
(85,289)
(37,215)
(61,301,751)
(97,718)
(3,682,527)
19,149 563 3,760,533 14,973,212 9,988,713 1,952,685 38,946 912,926 - 27,866,482
On -balance sheet
Assets Liabilities Net currency position Off -balance sheet
Credit commitments (Contingent liabilities) 21,369,148 17,290,742 1,071,660 1,580,049 4,085,680 45,397,279
(21,737,724)
(20,692,657)
(1,072,673)
(1,584,293)
(309,932)
(45,397,279)
(368,576)
(3,401,915)
(1,013)
(4,244)
3,775,748 -
9,440,902 11,281,037 1,755,465 55,959 556,080 23,089,443
31 December 2008
3.
53
3.3.4 Interest/Profit rate risk
a)
Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Group
takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest
margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise. The Board sets limits on
the level of mismatch of interest rate repricing that may be undertaken, which is monitored daily by Group Treasury.
The Asset Liability Management (“ALM”) process, managed through ALCO, is used to manage interest rate risk associated with non-trading financial
instruments. Interest rate risk represents the most significant market risk exposure to the Group’s non-trading financial instruments.
The Group’s goal is to manage interest rate sensitivity so that movements in interest rates do not adversely affect net interest income. Interest
rate risk is measured as the potential volatility to the net interest rate income caused by changes in market interest rates. The Group typically
manages the interest rate risk of its non-trading financial instruments by segmenting these assets and liabilities into two broad portfolios:
non–discretionary and discretionary. The non-discretionary portfolio consists of the Group’s customer driven loans and deposit positions and
securities required to support regulatory requirements. To manage the resulting interest rate sensitivity of the Group’s non-discretionary portfolio,
the Group uses a discretionary portfolio of securities, long dated deposits, inter-bank takings and placements, and when warranted, derivatives.
Strategically positioning the discretionary portfolio, the Group largely manages the interest rate sensitivity in the non-discretionary portfolio.
b)
Profit rate risk
Profit rate risk (under Islamic banking) is the prospective risk of losing available higher earning opportunities due to locking of assets for long term
at a fixed profit rate. Exposures to the profit rate risk of Islamic Assets are managed as follows:
1.
2.
3.
The following table summarises the interest / profit rate sensitivity position at 31 December, by reference to the re-pricing period of the Group’s
assets, liabilities and off- balance sheet exposures :
For financing at fixed rate profit, a security margin to cover the expected future appreciation of profit rate is added to the deal profit rate.
Longer tenor and high value transactions and deals are subject to periodical profit rate revisions.
Financing in short term assets or include a profit rate revisionary clause in financing deal agreement.
Upto
3 Months
3-12
Months
1-5
Years
Non-interest/ profit sensitive
Total
3,015,283
-
2,015,283
Due from banks and financial institutions :
- Conventional
- Islamic - Conventional
1,000,000 -
-
-
12,542,108 222,040 350,300 -
13,114,448
1,201,200 -
-
-
1,201,200
Loans, advances and financing activities for customers :
-
-
-
31,476,962
1,713,309 2,420,551
19,802,752 11,671,210 - Islamic 326,471 380,771 3,000 Financial investments
535,619 3,353,600 -
885,744 Investment in associates
-
-
-
3,641,486 4,774,963
3,641,486
Property and equipment and other assets
-
-
-
1,656,858 1,656,858
Total assets 35,408,150 15,627,621 2,066,609 8,199,371 61,301,751
31 December 2008
54
3.
b)
Profit rate risk (continued)
As at 31 December 2008 (continued)
Due to banks and financial institutions Customer deposits Borrowing under repurchase agreement
Upto
3 Months
3-12
Months
1-5
Years
3,192,259 7,730,610 -
22,745,486 2,089,413 81,388 Non-interest/ profit sensitive
Total
- 10,922,869
4,421,656 29,337,943
-
781,226 -
-
781,226
6,096,091 -
-
-
6,096,091
Other liabilities -
-
-
1,337,246 1,337,246
-
-
-
2,847,931 2,847,931
Equity -
-
-
9,978,445 9,978,445
32,033,836 10,601,249 81,388 18,585,278 61,301,751
Interest rate sensitivity gap
3,374,314 5,026,372 1,985,221 (10,385,907)
-
Cumulative interest rate sensitivity gap 3,374,314 8,400,686 10,385,907 -
-
Due from banks and financial institutions :
- Conventional
- Islamic Loans, advances and financing activities for customers :
- Conventional
- Islamic Financial investments 708,000 -
-
1,540,858 2,248,858
-
7,644,928 331,695 398,580 -
8,375,203
644,280 -
-
-
644,280
8,871,005 15,225,090 5,839 -
24,101,934
2,326 88,618 828,609 -
919,553
542,899 3,012,977 -
1,108,796 4,664,672
3,329,900
-
-
-
3,329,900 Property and equipment and Other assets -
-
-
1,112,879 1,112,879
Total assets 18,413,438 18,658,380 1,233,028 7,092,433 45,397,279
-
4,907,743
Due to banks and financial institutions Customer deposits 2,859,046 2,048,697 -
16,025,447 5,024,101 113,890 Other borrowed funds
Other liabilities 7,623,105 -
-
-
7,623,105
-
-
-
872,900 872,900
-
-
-
1,109,022 1,109,022
Equity -
-
-
6,227,817 6,227,817
26,507,598 7,072,798 113,890 11,702,993 45,397,279
Interest rate sensitivity gap
(8,094,160)
11,585,582 1,119,138 (4,610,560)
-
Cumulative interest rate sensitivity gap (8,094,160)
3,491,422 4,610,560 -
-
3,493,254 24,656,692
31 December 2008
3.
55
c)
Interest Rate Sensitivity
The following table demonstrates the sensitivity to a reasonable possible changes in interest rates, with all other variables held constant, of the
Group’s income statement.
The sensitivity of the income statement is the effect of the assumed changes in interest rate on the net interest income for one year, based on
the floating rate non-trading financial assets and financial liabilities. The effect of decreases in interest rates is expected to be equal and opposite
to the effect of the increases as shown below on the Group’s income statement and equity.
Change in basis points
Increase (decrease)
Sensitivity of net interest income 2008
2007
Sensitivity of equity
2008
2007
Currency
QAR
25bp
10,600 6,547
-
-
Non-QAR
25bp
3,090 5,492 1,637 2,121
3.4 Liquidity risk
Liquidity is the ongoing ability to accommodate liability maturities, fund asset growth and meet other contractual obligations in a timely and cost
effective fashion. Liquidity management involves the maintenance of an ample and diverse funding capacity, liquid assets and other source of cash to
cushion fluctuations in asset and liability levels arising from unanticipated events or market turbulence.
3.4.1 Liquidity risk management process
The management of liquidity risk is governed by the Group’s liquidity policy. The primary objective of liquidity risk management; over which ALCO
has oversight, is to provide a planning mechanism for unanticipated changes in the demand or needs for liquidity created by customer behaviour
or abnormal market conditions. ALCO emphasises the maximisation and preservation of customer deposits and other funding sources. ALCO also
monitors deposit rates, levels, trends and significant changes. Deposit marketing plans are regularly reviewed for consistency with the liquidity policy
requirements. ALCO has in place a contingency plan, which is periodically reviewed. The Group’s ability to raise wholesale and/or long term funding at
competitive costs is directly impacted by our credit ratings, which are as follows:
Moody’s
: Long Term A1, Short Term P-1 and Financial strength C-, outlook stable.
Fitch
: Long Term A, Short Term F1 and Financial strength C, outlook stable.
Standard & Poor’s : Long Term A-, Short Term A-2 outlook positive.
3.4.2 Funding approach
Sources of liquidity are regularly reviewed by ALCO of the Group to maintain a wide diversification by currency, geography, provider, product and term.
3.4.3 Non-derivative cash flows
The following table sets out the maturity profile of the Group’s major assets and liabilities. The contractual maturities of assets and liabilities have been
determined on the basis of the remaining period at the balance sheet date to the contractual maturity date and do not take account of the effective
maturities as indicated by the Group’s deposit retention history and the availability of liquid funds. Management monitors the maturity profile to ensure
that adequate liquidity is maintained.
31 December 2008
56
3.
3.4.3 Non-derivative cash flows (continued)
Cash and balances with Central Bank
Due from banks and financial institutions Loans, advances and
financing activities for customers
On balance sheet items
During
1 Month
1-3 Months
3-12 Months
Sub total
1 Year
Above 1
Year
No maturity
Total
1,058,727 -
-
1,058,727 -
1,956,556 13,637,584 17,776 222,040 13,877,400 350,300 87,948 14,315,648
5,701,032 1,581,275 2,441,947 9,724,254 24,173,259 - 33,897,513
-
-
-
-
3,621,283 1,153,680 Investment in associates
-
-
-
-
-
3,641,486 3,641,486
Property, equipment and other assets -
-
-
-
-
1,656,858 1,656,858
8,496,528 61,301,751
3,015,283
4,774,963
Total assets 20,397,343 1,599,051 2,663,987 24,660,381 28,144,842 Due to banks and financial institutions
10,922,869 -
- 10,922,869 -
- 10,922,869
Customer deposits 21,350,419 6,177,436 23,864 - 29,337,943
1,786,224 29,314,079 Borrowing under repurchase agreement
-
-
781,226 781,226 -
-
781,226
-
-
1,922,538 1,922,538 4,173,553 -
6,096,091
Other liabilities Unrestricted investment accounts Total liabilities -
-
-
-
-
1,337,246 1,337,246
1,151,075 1,114,475 303,189 2,568,739 57,524 221,668 2,847,931
33,424,363 7,291,911 4,793,177 45,509,451 4,254,941 1,558,914 51,323,306
Maturity gap
(13,027,020)
(5,692,860)
(2,129,190) (20,849,070)
23,889,901 6,937,614 9,978,445
1,020,237 -
-
1,020,237 -
1,228,621 2,248,858
Due from banks and financial institutions 7,881,672 373,758 331,695 8,587,125 398,580 33,778 9,019,483
Loans, advances and
financing activities for customers
3,571,516 1,891,198 2,024,590 7,487,304 17,534,183 Financial investments
-
-
-
-
3,723,776 940,896 4,664,672
-
-
-
-
-
3,329,900 3,329,900
Property, equipment and other assets -
-
-
-
-
1,112,879 1,112,879
Total assets 12,473,425 2,264,956 2,356,285 17,094,666 21,656,539 Due to banks and financial institutions
3,405,046 1,452,697 50,000 4,907,743 Customer deposits 14,773,588 5,004,326 4,764,908 24,542,822 - 25,021,487
6,646,074 45,397,279
- 113,870 4,907,743
- 24,656,692
-
-
2,912,000 2,912,000 4,711,105 -
7,623,105
Other liabilities -
-
-
-
-
872,900 872,900
Unrestricted investment accounts 259,193 997,832 20 111,170 1,109,022
Total liabilities 7,986,101 33,360,397 4,824,995 197,157 541,482 18,375,791 6,998,505 984,070 39,169,462
Maturity gap
(5,902,366)
(4,733,549)
(5,629,816) (16,265,731)
16,831,544 5,662,004 6,227,817
31 December 2008
3.
57
3.4.3 Non-derivative cash flows (continued)
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December based on contractual undiscounted repayment
obligations.
During
1 Month
Up to 3 Months Figures in thousand Qatar Riyals
3-12
Months
1-5
Years
Total
11,051,676 -
-
-
11,051,676
Customer deposits 22,299,681 6,452,091 1,865,518 24,923 30,642,213
Borrowing under repurchase agreement -
-
805,053 -
805,053
6,379,537
Unrestricted invesment accounts
Total Liabilities -
-
1,978,753 4,400,784 1,452,943 1,114,475 364,809 120,165 3,052,392
34,804,300 7,566,566 5,014,133 4,545,872 51,930,871
Customer deposits Other borrowed funds
Unrestricted invesment accounts
Total Liabilities 3,525,902 1,504,258 51,775 -
5,081,935
15,284,487 5,177,385 4,929,688 117,808 25,509,368
8,041,633
-
-
3,068,666 4,972,967 324,527 541,482 285,406 80,220 1,231,635
19,134,916 7,223,125 8,335,535 5,170,995 39,864,571
3.4.4 Derivative financial instruments
Generally, forward foreign exchange contracts are settled on a gross basis and interest rate swaps are settled on a net basis.
Maturity of forward foreign exchange contracts and interest rate swaps are given in note 29.
3.4.5 Off-balance sheet items
The table below summarises the maturity profile of the Group’s off balance sheet financial instruments based on the earliest contractual maturity date.
Loan commitments Guarantees, acceptances and other financial facilities
Capital commitments
Total
Loan commitments
Guarantees, acceptances and other financial facilities Capital commitments
Total
Below
1 Year
Above
1 Year
Total
1,304,913 4,348,781
5,653,694
13,591,312 8,621,476 22,212,788
6,492 -
6,492
14,902,717 12,970,257 27,872,974
1,041,019
1,849,827 2,890,846
12,413,764
7,784,833 20,198,597
153,552
-
153,552
13,608,335 9,634,660 23,242,995
31 December 2008
58
3.
3.4.6 Fair value of financial assets and liabilities
Based on the methods used to determine the fair value of financial instruments explained in note 2, the fair value of the Group’s assets and liabilities do
not differ significantly from their book values at the date of the balance sheet. Following are the financial assets and liabilities:
Financial assets
Balances with Central Bank excluding cash 2,610,269 1,932,532 2,610,269 Due from banks and financial institutions
14,315,648 9,019,483 14,315,648 9,019,483
33,897,513 25,021,487 33,897,513 25,021,487
4,774,963 4,664,672 4,679,674 4,675,938
Carrying value
2008
Fair value
2007
2008
2007
1,932,532
Financial liabilities
10,922,869 4,907,743 10,923,143 4,907,743
Customer deposits
29,337,943 24,656,692 29,337,943 24,656,692
Borrowings under repurchase agreements
781,226 -
775,331 -
6,096,091 7,623,105 5,899,868 7,637,819
2,847,931 1,109,022 2,847,931 1,109,022
i)
Due from banks includes inter-bank placements and lending to banks. The fair values of these financial instruments are not different from its
carrying value as the total portfolio has a very short duration and are re-priced frequently.
(ii)
Loans and advances are net of allowance for impairment. The estimated fair value of loans and advances is not significantly different from its
carrying value, as a significant portion of the portfolio is subject to frequent re-pricing in line with market rates.
(iii)
Financial investments includes held to maturity, available for sale and held for trading investments. Investments classified as available for sale and
held for trading are measured at fair value. Fair value for held-to-maturity investment is primarily based on market prices, where ever market price
is not available, the Group establishes the fair value using valuation techniques that includes discounted cash flow analysis, recent arms length
transactions and other valuation techniques commonly used by market participants. The fair values of held to maturity investments are stated in
note 9.
(iv)
Due to banks includes inter bank takings, short term borrowing, overnight and term deposits. The fair values of these financial instruments are not
different from its carrying value as the total portfolio has a very short term duration and are re-priced frequently.
(v)
The estimated fair value of other borrowed funds represent the discounted value of estimated future cash flow expected to be paid using current
market rates for similar loan facilities. The fair value of borrowed funds is disclosed in note 15.
(vi)
Customer deposits
The estimated fair value of non-interest bearing deposits approximate carrying value. The estimated fair value of interest bearing deposits is also
not different from the carrying values on the balance sheet date, as almost the total portfolio maturity is of very short duration and is re-priced at
market rates.
31 December 2008
3.
59
3.4.7 Summary of financial assets and financial liabilities per International Accounting Standard 39 category
Financial assets such as balances with Central Bank (excluding cash), due from banks, financial institutions, loans and advances, and certain other assets
are reported at amortised cost.
Financial investments include 51% of investments reported at fair value and 49% of investments reported at amortised cost.
All financial liabilities are reported at amortised cost.
3.5 Capital management The Group’s objectives in managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are:
•
•
To comply with the capital requirements set by the regulators of the banking markets where the entities of the Group operate;
To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other
stakeholders; and
To maintain a strong capital base to support the development of its business.
•
The capital adequacy ratio of the Group is calculated in accordance with the Basel Committee guidelines as adopted by Qatar Central Bank, using the
pro-rata consolidation method for its investments in associates.
Capital Adequacy
2008
2007
Tier I Capital
9,640,737 Tier II Capital
313,428 5,132,459
431,092
Total Capital
9,954,165 5,563,551
Risk weighted assets
63,581,945
46,947,673
Tier I Capital ratio
15.16%
10.93%
Total Capital ratio
15.66%
11.85%
Tier I capital includes share capital, legal reserve, general reserve,other reserves and retained earnings including current year profit and excluding
proposed dividend.
Tier II capital includes risk reserve (up to 1.25% of the risk weighted assets) and fair value reserve (45% if positive and 100% if negative).
The minimum ratio limit determined by Qatar Central Bank is 10% and the Basel Committee requirement is 8%.
The increase of Tier 1 capital in 2008 mainly resulted from net proceeds of rights issues and Global Depository Receipts (GDR) issues (see note 18).
31 December 2008
60
3.
3.6 Risk management in relation to others’ investments The Group is managing customers’ investments either directly or in the form of investment portfolios. The management of these investments by the
Group, could lead to some legal and operational risks. Accordingly, the Group takes necessary measures to control these risks.
Management of client’s investment portfolios are guided by the terms and conditions recorded in written agreements signed by the respective clients.
These portfolios are primarily invested in fixed income, capital guaranteed or coupon paying structures. Proper books of records for such portfolios are
maintained as per Qatar Central Bank guidelines.
3.7 Operational risk Operational risk is the risk of direct or indirect loss that may result from inadequate or failed technology, human performance, process or external events.
The Group endeavours to minimise operational losses by ensuring that effective infrastructure, controls, system and individuals are in place throughout
the organisation.
4.
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and
judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances
(a)
Impairment losses on loans and advances
The Group reviews its loan portfolio to assess impairment at least on a quarterly basis. In determining whether an impairment loss should
be recorded in the statement of income, the Group makes judgements as to whether there is any observable data indicating that there is a
measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in
that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers
in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on
historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when
scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are
reviewed regularly to reduce any differences between loss estimates and actual loss experience.
(b)
Impairment of available-for-sale investments
The Group determines that available-for-sale investments are impaired when there has been a significant or prolonged decline in the fair value
below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Group evaluates amongst
other factors, the normal volatility in share price. In addition, impairment may be relevant when there is evidence of deterioration in the financial
health of the investee, industry and sector performance, changes in technology and operational and financing cash flows. If any such evidence
of impairment for available-for-sale financial assets exists, the cumulative loss – measured as the difference between the acquisition cost and
the current fair value, less any impairment loss on that financial asset previously recognised in income statement is removed from equity and
recognised in the income statement.
(c)
Held-to-maturity investments
The Group follows the guidance contained in International Accounting Standard 39 on classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the
Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other
than in specific circumstances – for example, selling an insignificant amount close to maturity – it will be required to reclassify the entire class as
available-for-sale. The investments would therefore be measured at fair value not amortised cost.
31 December 2008
4.
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
(d)
Impairment of held to maturity investments
For held-to-maturity investments, the Group assesses individually whether there is objective evidence of impairment. If there is objective evidence
that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the
present value of estimated future cash flows. The carrying amount of the asset is reduced and the amount of the loss is recognised in the income
statement.
If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was
recognised, any amounts formerly charged are credited to the ‘Impairment losses on financial investments’.
(e)
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the balance sheet cannot be derived from active markets, they
are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from
observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments
include considerations of liquidity and model inputs such as correlation and volatility for longer dated derivatives.
5.
SEGMENT INFORMATION
The Group is divided into four main business segments which are as follows:
•
Conventional Banking – provides funded and non-funded credit facilities, demand and time deposit services, investment advisory and brokerage
services, currency exchange facilities, interest rate swap and other derivative trading services, loan syndication and structured financing services
to Corporate, Commercial and Multinational Customers. It also provides personal current, savings, time and investment accounts services, credit
card and debit card services, consumer loans and residential mortgage services, custodial services to retail and individual customers.
•
Islamic Banking– provides Islamic principles (Sharia) compliant banking services such as current, savings, time and investment account services,
consumers and finance leasing, trade finances to retail, corporate and commercial customers.
•
Orient 1 – a subsidiary of the Bank, provides credit card services in the Sultanate of Oman and Egypt.
•
Investment in associates – includes the Group’s strategic acquisitions in National Bank of Oman (NBO) and United Arab Bank (UAB) in UAE and
Asteco LLC in the State of Qatar, which are an accounted for under the equity method.
Segment assets and liabilities comprise operating assets and liabilities directly handled by the business group and income or expenses attributed in line
with the assets and liabilities ownership. The following table summaries performance of the business segments.
61
31 December 2008
62
5.
SEGMENT INFORMATION (continued)
(a)
By business segment
Conventional
Banking Islamic Banking Figures in thousand Qatar Riyals
Subsidiary
(Orient 1)
31 December 2008
Interest/similar income 2,689,059 180,896 3,357 Interest/similar expense (1,474,774)
(106,413)
(34)
Investment in Associates
- Total
2,873,312
- (1,581,221)
Net interest/similar income 1,214,285 74,483 3,323 - 1,292,091
Fee, commission and other income
1,432,790 29,484 14,264 - 1,476,538
2,647,075 103,967 17,587 - 2,768,629
(643,128)
(28,105)
(10,904)
- (682,137)
Depreciation
(64,438)
(3,281)
(254)
- (67,973)
(57,109)
(1,936)
233 - (58,812)
(464,850)
- (464,850)
Profit before share of associates’ results 1,417,550 - 1,494,857
Share of results of associates Net profit for the year
- 1,417,550 - 70,645 - 70,645 - 6,662 - 6,662 207,585 207,585
207,585 1,702,442
3,641,486 61,301,751
Other Information
Assets Capital expenditure
Liabilities and unrestricted investment accounts
53,517,107 4,065,535 77,623 458,617 24,256 20 47,574,544 3,744,890 3,872 - 482,893
- 51,323,306
31 December 2007
Interest/similar income 2,239,805 83,664 4,301 Interest/similar expense (1,367,998)
(30,625)
(81)
Net interest/similar income 871,807 53,039 4,220 - 929,066
990,492 17,473 5,581 - 1,013,546
1,862,299 70,512 9,801 - 1,942,612
(449,156)
(28,170)
(10,599)
- (487,925)
Depreciation
(50,807)
(1,323)
(362)
- (52,492)
(47,279)
(1,253)
498 - (48,034)
(85,904)
- - (85,904)
(10,700)
- Profit before share of associates’ results Share of results of associates Net profit for the year
1,218,453 - 1,218,453 39,766 - 39,766 - - 2,327,770
- (1,398,704)
(334)
- (11,034)
(996)
- 1,257,223
- (996)
133,492 133,492
133,492 1,390,715
3,329,900 45,397,279
Other Information
Assets Capital expenditure
Liabilities and unrestricted investment accounts
Intra-group transactions are eliminated from this segmental information.
40,295,445 216,073 37,754,413 1,698,427 - 1,408,661 73,507 - 6,388 - 216,073
- 39,169,462
31 December 2008
5.
(b)
63
By geographical segment
Geographically, the Group operates in Qatar. Its subsidiaries and associates are in Qatar, Sultanate of Oman, United Arab Emirates and Egypt. Qatar
operations contribute 67% in terms of profit (2007:66 %) and holds 72% of the Group’s assets (2007: 63%).
Qatar
Balance Sheet
Other GCC
countries
Europe
North
America
Others
Total
3,015,278 -
-
-
5
3,015,283
Due from banks and financial institutions 6,635,763 4,663,829 2,432,374 477,357 106,325 14,315,648
29,865,141 3,276,465 418,628 91,000 246,279 33,897,513
2,860,421 350,591 426,459 983,650 153,842 4,774,963
2,915 3,638,571 -
-
-
3,641,486
Property and equipment and other assets 1,645,915 -
-
-
10,943 1,656,858
Total assets 44,025,433 11,929,456 3,277,461 1,552,007 517,394 61,301,751
Due to banks and financial institutions Customer deposits 9,096,352 1,644,512 77,900 -
104,105 10,922,869
26,820,199 310,880 2,170,656 -
36,208 29,337,943
Borrowing under repurchase agreements -
-
781,226 -
-
781,226
-
4,282,209 1,813,882 -
-
6,096,091
-
-
3,355 1,337,246
2,847,931 -
-
-
-
2,847,931
Equity 9,978,445 -
-
-
-
9,978,445
50,076,818 6,237,601 4,843,664 -
143,668 61,301,751
Due from banks and financial institutions Loans, advances and financing activities for customers
Property and equipment and other assets Total assets Due to banks and financial institutions Customer deposits Other borrowed funds
-
-
11 2,248,858
749,000 5,304,673 2,444,400 5,212 516,198 9,019,483
21,522,598 2,181,668 564,200 91,000 662,021 25,021,487
2,942,888 154,330 527,048 946,640 93,766 4,664,672
-
3,329,900 -
-
-
3,329,900
1,090,595 -
-
-
22,284 1,112,879
28,553,928 10,970,571 3,535,648 1,042,852 1,294,280 45,397,279
2,341,739 1,737,056 255,648 18,747 554,553 4,907,743
23,507,740 1,119,513 -
-
29,439 24,656,692
-
5,812,444 1,810,661 -
-
7,623,105
867,067 -
-
-
5,833 872,900
1,109,022
1,109,022 -
-
-
-
Equity 6,227,817 -
-
-
-
6,227,817
34,053,385 8,669,013 2,066,309 18,747 589,825 45,397,279
31 December 2008
64
5.
(b)
By geographical segment (continued)
Qatar
Other GCC
countries
Europe
North
America
Others
Total
Income Statement
Interest/similar income 2,454,529 210,178 140,506 25,342 42,757 2,873,312
Interest/similar expense (1,082,785)
(276,632)
(167,598)
(13,847)
(40,359)
(1,581,221)
Net interest/similar income 1,371,744 (66,454)
(27,092)
11,495 2,398 1,292,091
1,377,388 35,910 29,984 (1,747)
35,003 1,476,538
2,749,132 (30,544)
2,892 9,748 37,401 2,768,629
(671,233)
-
-
-
(10,904)
(682,137)
Depreciation and amortization
(67,719)
-
-
-
(254)
(67,973)
Impairment losses on loans and advances,net
(61,511)
2,466 -
-
233 (58,812)
(464,850)
-
-
-
-
(464,850)
Profit before share of associates’ result 1,483,819 (28,078)
2,892 9,748 26,476 1,494,857
Share of results of associates Net profit for the year 1,415 206,170 -
-
-
207,585
1,485,234 178,092 2,892 9,748 26,476 1,702,442
54,402 81,670 2,327,770
(1,398,704)
Interest/similar income 1,639,130 411,919 140,649 Interest/similar expense (945,162)
(288,548)
(150,021)
(2,213)
(12,760)
Net interest/similar income 693,968 123,371 (9,372)
52,189 68,910 929,066
898,534 49,927 31,656 7,444 25,985 1,013,546
1,592,502 173,298 22,284 59,633 94,895 1,942,612
(477,326)
-
-
-
(10,599)
(487,925)
Depreciation and amortization
(52,130)
-
-
-
(362)
(52,492)
Impairment losses on loans and advances,net
(50,772)
2,240 -
-
498 (48,034)
(85,904)
-
-
-
-
(85,904)
(10,700)
-
-
-
(334)
(11,034)
Profit before share of associates’ result 915,670 175,538 22,284 59,633 84,098 1,257,223
Share of results of associates -
133,492 -
-
-
133,492
Net profit for the year 915,670 309,030 22,284 59,633 84,098 1,390,715
31 December 2008
6.
CASH AND BALANCES WITH CENTRAL BANK
2008
2007
405,014
316,326
Cash
Cash reserve with Qatar Central Bank*
1,551,542
823,488
Other balances with Qatar Central Bank
1,058,727
1,109,044
Total
3,015,283
2,248,858
*The cash reserve with Qatar Central Bank is not available for use in the Group’s day to day operations.
7.
DUE FROM BANKS AND FINANCIAL INSTITUTIONS
2008
Demand accounts
Placements:
- Conventional
- Islamic
Loans to banks and financial institutions
Total due from banks and financial institutions
- Allowance for impairment
Net due from banks and financial institutions
Movement in allowance for impairment
Balance at 1 January
Allowance for impairment made during the year
Amounts recovered during the year
Net recoveries during the year
Balance at 31 December
2007
87,496 33,778
12,585,200 7,632,360
1,201,200
644,280
441,752
712,768
14,315,648
9,023,186
-
(3,703)
14,315,648
9,019,483
2008
2007
3,703
5,614
38
328
(3,741)
(2,239)
(3,703)
(1,911)
-
3,703
65
31 December 2008
66
8.
LOANS, ADVANCES AND FINANCING ACTIVITIES FOR CUSTOMERS
i)
By type
2008
Total
2007
Total
Conventional
Islamic 29,897,295
2,423,686
32,320,981
22,500,853
1,761,632 -
1,761,632 1,989,081
101,625 -
101,625 733,828
31,760,552 2,423,686 34,184,238 25,223,762
Loans, advances and receivables
Overdrafts
Bills discounted
Sub total Allowance for impairment
(283,590)
(3,135)
(286,725)
(202,275)
Net loans and advances
31,476,962 2,420,551 33,897,513 25,021,487
Interest in suspense of QAR 94 million (2007: QAR 66 million) is included in the above allowance for impairment amount for the purpose of the
Qatar Central Bank regulations requirements. Net allowance for interest in suspense during the year amount to QAR 35 million (2007: QAR 22
million).
Islamic financing is carried at net of deferred profits of QAR 418 million (2007 : QAR 297 million).
The total non-performing loans and advances at 31 December 2008 amounted to QAR 290 million, representing 0.85% of the total loans and
advances (QAR 209 million representing 0.84% of the total loans and advances at 31 December 2007).
ii)
By industry before allowance for impairment
Islamic
Loans
Overdrafts
Bills
discounted
2008
Total
2007
Total
Government -
530,333 3,618 -
533,951 575,407
Government and semi-government agencies
-
3,243,101 2,971 -
3,246,072 2,666,497
Industry
-
1,087,914 141,334 16,343 1,245,591 547,900
Commercial 4,372,774 368,441 29,061 4,770,276 3,924,237
Services
123,314 3,228,897 149,705 28,783 3,530,699 1,760,816
Contracting 179,090 3,065,549 137,791 22,383 3,404,813 2,396,691
Real estate
876,751 5,031,218 3,161 -
5,911,130 3,282,542
Consumption
622,950 5,808,525 934,788 5,055 7,371,318 6,455,799
Other 621,581 3,528,984 19,823 -
4,170,388 3,613,873
Total
2,423,686 29,897,295 1,761,632 101,625 34,184,238 25,223,762
iii)
Conventional
Allowance for impairment made during the year
Amounts recovered during the year Net allowance for impairment during the year
Allowance for impairment used during the year for write-offs
283,590 Figures in thousand Qatar Riyals
Movement in allowance for impairment
Islamic 2008
Total
2007
Total
201,022 1,253 202,275 116,009 2,075 118,084 140,648
88,803
(21,282)
(139)
(21,421)
(16,572)
94,727 1,936 96,663 72,231
(12,159)
(54)
(12,213)
(10,604)
3,135 286,725 202,275
31 December 2008
9.
FINANCIAL INVESTMENTS
2008
Total
2007
Total
Investments comprise the following:
Held for trading
76
-
Held to maturity
2,359,547
2,473,358
Available for sale
2,415,340
2,191,314
Total
4,774,963
4,664,672
i)
Available-for-sale investments (“AFS”)
By type
At fair value
2008
2007
Listed
Unlisted Listed
Unlisted
Equities
827,108 482,948 761,178 Qatar Government bonds in USD
14,196 -
21,930
-
Other debt securities - Fixed rate
90,563 108,387 114,698 143,742
Other debt securities - Floating rate
32,395 383,326 90,826 451,369
Islamic sukuk - Fixed rate
- 7,639 - Islamic sukuk - Floating rate
- 18,200 - Investment funds
-
Investment funds - Islamic
- Total 450,578 - 964,262 1,451,078 179,718
-
6,618 419,818
1,417 -
996,667 1,194,647
Equities, other bonds and investment funds units are net of impairment losses of QAR 398 million (2007: QAR 143 million). Allowance for
impairment during the year QAR 343 million (2007: QAR 86 million).
ii)
Held-to-maturity investments (“HTM”)
By type
At amortised cost
2008
Listed
2007
Unlisted Listed
Unlisted
Qatar Government bonds in USD 915,399
-
930,050 -
Qatar Government bonds in QAR
-
1,126,230 -
1,131,406
Other debt securities
-
206,313 -
331,386
Islamic bonds
Total *
37,856 73,749 76,876 3,640
953,255 1,406,292 1,006,926 1,466,432
953,255
1,280,935 930,050 125,032
1,337,760
By nature of income
Fixed rate Floating rate
-
125,357 -
Floating profit at maturity
-
-
76,876 3,640
953,255
1,406,292 1,006,926 1,466,432
Total
Other debt securities are net of impairment losses of QAR 122 million ( 2007: nil), the entire amount provided during the year.
* The fair value of held to maturity investments amounted to QAR 2,264 million at 31 December 2008 (2007: QAR 2,485 million).
The carrying value of financial investments pledged under Repo agreements amounted to QAR 990 million (2007: nil).
67
31 December 2008
68
10. INVESTMENTS IN ASSOCIATES
The Group’s interest in its associates as at 31 December 2008 are as follows:
Name
a)
Country of
incorporation
Assets
Liabilities
National Bank of Oman SAOG
Our share of
Operating
income
Net Profit
Carrying value
% interest held
2008
2007
Oman
-2008
-2007
b)
United Arab Bank PJSC
-2008
6,535,286 5,632,999
290,289
135,063
34.85%
1,455,823
-
4,100,000
214,400
132,567
34.85%
-
1,429,093
2,996,519 2,464,904
4,870,000
UAE
166,134
71,107
40.00%
2,182,748
-
2,140,000
1,700,000
118,180
925
34.69%
-
1,900,807
Qatar
4,519
1,604
4,964
1,415
30.00%
2,915
-
3,641,486
3,329,900
-2007
c)
Asteco LLC
Total
Further breakup of associates movements are as follows:
a)
National Bank of Oman SAOG (NBO)
Balance at beginning of the year
Less : dividend received
2008
2007
1,429,093
1,285,158
(53,039)
(46,138)
Add : share of profit before tax
170,110
165,865
Less : share of tax
(20,665)
(18,898)
Share of net profit after tax
149,445
146,967
Less : amortisation of intangible assets
(14,382)
(14,400)
Share of results of associate net of tax
135,063
132,567
Exchange difference
(357)
(450)
Add : share of post acquisition revaluation reserve
(54,937)
57,956
Balance at end of the year
1,455,823
1,429,093
Shares of National Bank of Oman SAOG (NBO) are listed on the Muscat Securities Market and the quoted price on the balance sheet date was
OMR 0.365. The estimated fair value of the investment based on this price as at 31 December 2008 is QR 1,304 million (2007: QR 2,267 million).
Investment in associates at National Bank of Oman (NBO) at 31 December 2008 includes goodwill of QR 574 million (2007: QR 574 million).
Under a separate management agreement with NBO, the Group is responsible for the day to day management of NBO affairs subject to the
overall supervision of NBO Board. The Group does not however control NBO as only 4 out of 11 members of the board of NBO are represented by
the Group.
31 December 2008
10. INVESTMENTS IN ASSOCIATES (continued)
69
b) United Arab Bank (UAB)
The movement in investment in UAB is as follows:
2008
2007
1,900,807
1,899,882
Add acquired during the period
284,920
-
Less dividend received
(29,607)
-
Add : share of net profit
99,164 72,651
Less : share of pre-acquisition net profit
Share of post acquisition net profit
Less amortisation of intangible assets
Share of results of associate net of tax
Exchange difference
Add : share of post acquisition revaluation reserve
- (71,258)
99,164 1,393
(28,057)
(468)
71,107 925
(50)
-
(44,429)
-
2,182,748 1,900,807
Shares of United Arab Bank PJSC (UAB) are listed on the Abu Dhabi Securities Market and the quoted price on the balance sheet date was AED
7.94. The estimated fair value of the investment based on this price as at 31 December 2008 is QR 2,509 million (2007: QR 1,632 million).
Investment in associates at UAB at 31 December 2008 includes goodwill of QR 1.4 billion (2007: provisional QR 1.2 billion).
Under a separate management service agreement signed with UAB, the Bank would be responsible for the day to day management of UAB affairs
subject to overall supervision of the UAB board. However the Group does not control UAB as only 4 out of 9 members of the board of UAB are
represented by the Group.
c)
Asteco LLC
The movement in investment in Asteco is as follows:
2008
2007
1,500
-
Add : share of net profit
1,415
-
2,915
-
Asteco is a locally incorporated entity primarily engaged in property management and sales. The bank owns 30% of the ordinary share capital.
31 December 2008
70
11.
PROPERTY AND EQUIPMENT
Land and
buildings
Leasehold
improvements
Furniture and
equipment
Motor
vehicles
Capital workin-progress
Total
At 31 December 2008
Cost:
Balance at 1 January 266,266 55,444 215,031 5,898 427,089 969,728
Additions 188,493 38 15,093 1,387 277,882 482,893
Disposals
(528)
(902)
(155)
Transfers
7,191 157,992 Exchange differences
- 250,580 - 705,339 - 62,145 13 387,227 - - 7,130 - (415,763)
- 289,208 (1,585)
13
1,451,049
Accumulated Depreciation
Balance at 1 January 65,005 27,442 152,677 3,211 - Charge for the year
21,662 8,446 36,756 1,109 - 67,973
Disposals
(528)
(660)
(155)
- (1,343)
Exchange differences
Net carrying amount
- - - 11 - 86,667 35,360 188,784 4,165 618,672 26,785 198,443 2,965 248,335
- 11
- 314,976
289,208 1,136,073
At 31 December 2007
Cost:
Balance at 1 January Additions Disposals
234,798 38,595 185,877 4,711 290,075 754,056
31,468 16,849 29,154 1,588 137,014 216,073
- 266,266 - 55,444 - 215,031 (401)
5,898 - 427,089 (401)
969,728
Accumulated Depreciation
Balance at 1 January 52,415 19,387 121,630 2,411 - 195,843
Charge for the year
12,590 8,055 31,047 800 - 52,492
65,005 27,442 152,677 3,211 - 248,335
201,261 28,002 62,354 2,687 Net carrying amount
Capital work in progress includes QAR 254 million for Umm-Bab tower, QAR 15 million for branch renovations and QAR 20 million for various IT projects.
427,089 721,393
31 December 2008
12. OTHER ASSETS
Accrued income
Prepaid expenses
Amounts receivable
Net value of the properties acquired in settlement of debts*
2008
2007
284,273
208,022
9,115
19,067
92,119
87,401
1,700
1,700
Franchise Rights **
12,198
22,150
Derivatives with a positive fair value (Note 29)
21,043
13,601
Clearing cheques
20,865
10,711
Sundry assets
79,472
28,834
520,785
391,486
* This represents the value of the properties acquired in settlement of debts which are stated at their acquisition value net of any provision required for
impairment. The estimated market value of these properties as at 31 December 2008 is QAR 8 million (2007: QAR 13 million). ** This represents the cost of acquiring the Diners Club franchises in Qatar, Egypt and Oman. The franchise costs are being amortised over the duration
of the franchise agreement (20 years). The Group disposed of its Franchise Rights for Bahrain, Syria and Yemen in 2008.
13. DUE TO BANKS AND FINANCIAL INSTITUTIONS
Current accounts
Placements
Total
2008
2007
1,122,800
57,191
9,800,069
4,850,552
10,922,869
4,907,743
14. CUSTOMER DEPOSITS
i)
By type
2008
2007
Demand and call deposits
6,075,323
5,636,914
Savings deposits
1,780,681
1,232,293
Time deposits
20,985,414
17,535,092
Islamic branches - demand deposits
Total
ii)
496,525
252,393
29,337,943
24,656,692
4,340,344 2,570,598
8,124,163
4,388,298
6,724,586
3,392,000
By sector
Government
Government and semi-government agencies
Individuals
- Conventional
- Islamic branches
- Conventional
Corporate - Islamic branches
Accounts held as collateral included in customer deposits QAR 1.50 billion ( 2007: QAR 1.45 billion)
Total
133,535
159,418
9,652,325
14,053,403
362,990
92,975
29,337,943
24,656,692
71
31 December 2008
72
15. OTHER BORROWED FUNDS
Syndicated Loans : This represents term borrowings raised through syndicated loan facilities from consortiums of international and regional banks, to
support the general funding needs of the Group as follows:
•
In May 2004, the Group obtained a syndicated loan for an amount of USD 150 million or QAR 546 million to reduce the balance sheet maturity
mismatch gap. This is an unsecured bullet repayment loan facility with a floating rate of interest linked to USD LIBOR plus a margin of 42.5 basis
points for the first 36 months and 47.5 basis points thereafter repayable in full after 60 months. The fair value of the loan as at 31 December
2008 is USD 150 million (2007: USD 150 million).
•
In April 2007, the Group concluded another syndicated loan for an amount of USD 650 million or QAR 2,366 million for a five year period to
refinance two short term loans totalling USD 490 million that were fully repaid in January 2007. This is an unsecured bullet repayment loan facility
with a floating rate of interest linked to US$ LIBOR plus a margin of 27.5 basis points per annum. The fair value of the loan as at 31 December
2008 is USD 641 million (2007: USD 652 million).
•
In November 2008, the Group raised USD 380 million or QAR 1,383 million in the form of a term loan facility for general funding purposes.This is
an unsecured bullet repayment loan facility with a tenor of 1 year and has a floating rate of interest linked to a Reference Rate plus a margin of 90
basis points per annum. The fair value of the loan as at 31 December 2008 is USD 372 million.
EMTN programme : The Group has established access to international capital markets through a listing of a US$ 1.5 billion Euro Medium Term
Note (EMTN) programme on the London Stock Exchange. The EMTN programme structure allows flexibility for the Group to issue both senior and
subordinated instruments, across a wide range of tenors and currencies.
The Group completed on 12 October 2006 its debut international bond issue under the EMTN programme, the first by a Qatari financial institution. The
US$ 500 million senior Floating Rate Notes (FRN) pay a floating rate of interest coupon of 40 basis points over 3 month US$ LIBOR, and are payable
in full on final maturity of 5 years. The FRNs are listed and traded on the London Stock Exchange, with settlement through Euroclear or Clearstream in
Luxembourg. The estimated fair value of the bonds as at 31 December 2008 was QAR 1.67 billion (2007: QAR 1.82 billion).
Syndicated loans
EMTN (Bonds)
Total
Movements in other borrowed funds may be analysed as follows:
2008
2007
4,282,209 5,812,444
1,813,882 1,810,661
6,096,091 7,623,105
2008
2007
7,623,105 4,135,688
Additions of borrowings
1,375,938 5,264,404
(2,912,000)
(1,783,600)
Repayments of borrowings
Amortisation of transaction costs
Balances at end of the year
The Group has not had any defaults of principal, interest or any other breaches with respect to its financial liabilities during the reporting periods.
9,048 6,613
6,096,091 7,623,105
31 December 2008
16. OTHER LIABILITIES
2008
2007
Deferred income
104,845
72,579
603,010
335,944
Accrued expenses Other provisions -see i) below
96,860
71,066
Derivatives with negative fair values (note 29)
17,008
10,259
Cash margins
126,204
78,149
Clearing cheque accounts
19,541
9,641
Accounts payable 196,398
119,840
Directors’ remuneration 47,856
47,856
Social responsibility fund 12,481
10,784
10,191
11,729
2,175
8,903
Dividend payable
Outward cheques in collection
Managers’ cheque and payment order 11,988
26,002
Unclaimed balances
23,361
16,038
Sundry liabilities 65,328
54,110
Total 1,337,246
872,900
i)
OTHER PROVISIONS
Other
provision (a)
Provident
fund (b)
Pension
fund (b)
2008
2007
2,000
68,583
483
71,066
62,387
Provisions made during the year- Bank contribution
-
22,090
3,245
25,335
12,992
Pension fund - staff contribution
-
6,995
1,623
8,618
6,219
Provisions transferred to retirement fund authority
-
-
(4,640)
(4,640)
(2,748)
Provisions utilised during the year
-
(3,519)
-
(3,519)
(7,784)
2,000
94,149
711 96,860
71,066
a)
Other provision relates to the Group’s investment in its subsidiary.
b)
Provision for pension fund covers the Group’s obligation for Qatari staff per Qatari pension fund law. The provision for provident fund includes the
Group’s obligations for end of service benefits for staff per Qatari labour law and the Bank’s employment contracts.
73
31 December 2008
74
17. UNRESTRICTED INVESTMENT ACCOUNTS
i)
By type
Saving deposits
2008
2007
221,668
111,170
Call deposit
45,770
-
Investment deposits
2,580,493
997,852
Total
2,847,931
1,109,022
ii)
By sector
Individuals
607,645 535,183
Corporate
2,240,286 573,839
Total
2,847,931 1,109,022
Following are the profit distribution rates for the investment account holders.
2008
(%)
2007
(%)
1 year term 6.00
6.00
6 months term
5.15
4.625
3 months term
5.00
4.125
1 month term
4.75
4.00
Savings account
3.10
3.00
Special deposits
4.68
5.33
Call account
2.50
-
18. EQUITY
Share capital
Issued and paid up capital
The issued, subscribed and paid up capital of the Bank is QAR 2,062,053,000 (2007: QAR 1,401,579,330) divided into 206,205,300 (2007:140,157,933)
ordinary shares of QAR 10 each.
a)
The Bank concluded a capital raising transaction, and the listing of its Global Depositary Receipts (GDRs) on the London Stock Exchange, on 3 July
2008. The capital raising was accomplished as a three part process via a Rights Offering, GDR Offering and a Private Placement of new ordinary
shares. 4,664,705 shares were issued through the rights offering and 900,000 shares were issued through private placement. In addition a total of
92,176,475 GDRs were issued, and each GDR represents ownership of one fifth of one ordinary share. The issue of a total of 24 million ordinary shares
from these offerings at a price of QAR 136.5 per share has raised QAR 3.2 billion net of transaction costs.
b)
At an Extraordinary General Assembly of the Bank held on 26 November 2008, the Shareholders approved the Board of Directors’ recommendations
to increase the share capital of the Company from QAR 2,062,053,120 to a maximum of QAR 2,474,463,750 by private placement to the Qatar
Investment Authority of up to 41,241,063 new ordinary shares at a subscription price of such amount (inclusive of premium) as equals the closing
price on the Doha Securities Market of the ordinary shares of the Company on Sunday 12 October 2008. As at balance sheet date the issue of
additional shares as described above, has not been finalised.
31 December 2008
18. EQUITY (continued)
75
Legal reserve
The proceeds of a share issue received net of any directly attributable transaction costs are directly credited to share capital (nominal value) and legal
reserve (share premium) when shares have been issued at a price higher than their nominal value as per Articles 154 and 192 of the Commercial Companies
Law no. 5 of 2002.
In accordance with the Central Bank Law, 10% of the net profit for the year is required to be transferred to the Legal Reserve until the reserve equals 100% of
the paid up capital. This reserve is not available for distribution except in circumstances specified in the Commercial Companies Law No. 5 of 2002 and after
approval of Qatar Central Bank. Legal reserve also includes the share premium arising on rights issues from the date of incorporation.
General reserve
As per the Bank’s Articles of Association, the general reserve may only be used in accordance with a resolution from the General Assembly upon the Board of
Directors recommendation and after obtaining Qatar Central Bank approval.
The fair value reserve arises from the revaluation of the available-for-sale investments, change of post acquisition fair value reserve of its associates and
exchange gain or loss on consolidation of subsidiaries’ and associates’ financial statements. The movement in fair value reserve during the year is as follows:
2008
2007
Balance at 1st January
188,426
1,624
Revaluation results
(393,690)
181,404
Transferred to income statement, net
(138,187)
(52,612)
Share of revaluation reserves of associated companies
(99,366)
57,956
Adjustment for exchange rate fluctuations
(40)
54
Balance at 31 December *
(442,857)
188,426
*Balance at 31 December 2008 includes negative fair value of QAR 506 million ( 2007 : QAR 33 million).
Risk reserve
This represents a general reserve as per the regulation of Qatar Central Bank to cover a minimum 2% (increased from 1.5% to 2% in September 2008) of
the loan portfolio excluding specific provision, interest in suspense, deferred profits of Islamic branch, lending to Ministry of Finance of the State of Qatar,
guaranteed by Ministry of Finance and lending against cash collaterals. This amount is not available for distribution without the prior approval of Qatar
Central Bank.
Other reserves
This represents Group’s share of profit from investment in associates net of cash dividend received. The movement in other reserves during the year is as
follows:
2008
2007
171,903
84,549
Less : Dividend received from associates transferred to retained earnings
(53,555)
(46,138)
(net of pre-acquisition dividend)
Add : Share of result of associates for the year
207,585
133,492
325,933
171,903
Proposed dividend and issue of bonus shares
The Board of Directors have proposed a cash dividend of 70% (or QAR 7.0 per share) for the year 2008 (2007: QAR 4.0 per share). No bonus shares have
been proposed as at 31st December 2008 ( 2007: 30% or 3 shares for every 10 shares held).
31 December 2008
76
19. INTEREST INCOME
2008
2007
273,262
275,138
Banks and financial institutions Financial investments
162,355
193,018
Loans and advances to customers 2,256,799
1,775,950
Total 2,692,416 2,244,106
20. INTEREST EXPENSE
Banks and financial institutions
Total
21.
INCOME FROM ISLAMIC FINANCING AND INVESTMENT ACTIVITIES
Financing to customers
Banks and financial institutions
Total
2008
2007
183,647
195,998
1,009,955
899,507
281,206
272,574
1,474,808
1,368,079
2008
2007
147,930
60,717
28,029
18,331
4,937
4,616
180,896
83,664
22. FEE AND COMMISSION INCOME
2008
2007
Loans and financing advisory service
616,109
390,977
Indirect credit facilities
158,043
135,329
Credit cards
165,075
139,481
Banking and other operations
68,824
42,941
Investment activities for customers
31,964
24,547
Total
1,040,015
733,275
23. NET GAINS FROM DEALING IN FOREIGN CURRENCIES
Profits from foreign currency transactions
Gains/(losses) from revaluation of assets and liabilities
Total
2008
2007
128,836
84,768
2,089
(1,014)
130,925
83,754
31 December 2008
24. PROFIT FROM FINANCIAL INVESTMENTS
Available-for-sale
Held for trading
Total
2008
2007
278,201
205,772
(2,171)
-
276,030
205,772
25. OTHER OPERATING INCOME
Management fees from associates
Rental income
Gain on sale of assets and other income
Total 26. GENERAL AND ADMINISTRATIVE EXPENSES
2008
2007
9,222
6,800
23,011
4,700
54,791
7,360
87,024
18,860
2008
2007
Salaries and other benefits
383,750
269,063
Bank’s contribution to provident fund and Qatari pension fund
25,335 12,992
Training programmes costs
10,870 4,617
Marketing and promotional expenses
51,969 43,278
Legal and professional charges
35,716 20,175
Communication, utilities and insurance
28,586 21,521
Occupancy, IT Consumables and maintenance
54,682 42,156
Travel and entertainment expenses
5,203 4,181
Supplies
9,536 6,721
Directors’ remuneration and meeting attendance fees 48,636 48,606
Others operating expenses
27,854 14,615
Total 682,137
487,925
77
31 December 2008
78
27. EARNINGS PER SHARE
During the year 2008, the Bank issued bonus shares for the year 2007 and also the bank concluded a capital raising transaction. Accordingly, the previously
reported earnings per share as at 31 December 2007 has been restated for the effects of the bonus shares issued during the year.
2008
2007
1,702,442
1,390,715
194,253 182,205
Basic and diluted
Profit attributable to equity holders of the Group (QAR’000)
Weighted average number of shares in issue during the year The weighted average number of shares have been calculated as follows:
Qualifying shares at the beginning of the year
140,158
140,158
Effect of bonus share issue
42,047
42,047
Effect of rights issue, GDR and Private Placement
12,048
-
194,253
182,205
Basic and diluted earnings per share (QAR)
8.76
7.63
28. OFF-BALANCE SHEET ITEMS
2008
2007
a)
Loan commitments, guarantees and other financial facilities
Acceptance
2,388,401
3,113,752
Guarantees
14,488,472 13,109,009
Letter of credit 5,335,915 3,975,836
Un-utilised credit facilities granted to customers 5,653,694 2,890,846
27,866,482 23,089,443
6,089,289 3,323,312
1,310 2,373
b)
Other undertakings and commitments
Foreign exchange contracts and derivatives for customers (Note 29)
Guaranteed investment funds Portfolios and investments managed for others :
Conventional Banking - Portfolio management (Note i)
-
58,240
Islamic Branches - restricted investment accounts (Note ii)
-
38,000
Capital commitments 6,492 153,552
i) The Group managed an investment portfolio of USD 16 million (2007: USD 16 million) on behalf of customers for a period of five years that
matured and closed in 2008.
ii)
These are restricted investments accounts managed by the Group’s Islamic branches on behalf of customers in line with the terms and
conditions agreed upon with the customer.
31 December 2008
29. DERIVATIVE INSTRUMENTS
The table below shows the positive and negative fair values of derivative financial instruments together with the notional amounts analysed by the term to
maturity. The notional amounts, which provide an indication of the volumes of the transactions outstanding at the year-end, do not necessarily reflect the
amounts of future cash flows involved and the credit and market risk, which can be identified from the derivatives’ fair value.
Positive
fair value
Negative
fair value
Notional
Amount
Within three
months
3-12
months
1 – 5 years
21,043 17,008 6,089,289 1,764,224 953,830 374,074 As at 31 December 2008
Derivatives for customers
Interest rate swaps, options and
forward foreign exchange contracts
Derivatives for customers
Interest rate swaps, options and
Principle value at maturity
More than
5 years
2,997,161
forward foreign exchange contracts
13,601 10,259 3,323,312 1,040,496 574,457 144,523 1,563,836
The bank maintains strict control limits on net open derivative positions, i.e. the difference between purchase and sale contracts, by both amount and
term. At any one time the amount subject to credit risk is limited to the current fair value of instruments that are favourable to the bank (i.e. assets) which
in relation to derivatives is only a small fraction of the contract or notional values used to express the volume of instruments outstanding. This credit risk
exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other
security is not usually obtained for credit risk exposures on these instruments, except where the bank requires margin deposits from counter-parties.
30. INVESTMENT CUSTODIAN
On the balance sheet date the Group holds QAR 231 million (2007: QAR 331 million) worth of international investment securities on behalf of its customers.
Out of this amount, investment securities with a value of QAR 151 million equivalent to USD 41 million (2007: QAR 176 million equivalent to USD 48 million)
are held with an international custody and settlement house. The remaining investment securities are held with the financial institutions through whom
the securities were purchased. These financial institutions are industry leaders in their respective fields. The Group has established maximum limits for such
holding with each financial institution according to its risk management policy.
79
31 December 2008
80
31.
TRANSACTIONS WITH RELATED PARTIES
The Group carries out various transactions with subsidiaries and associate companies and with members of the Board of Directors, the executive
management or companies in which they have significant interest or any other parties of important influence in the Group’s financial or operations
decisions. The balances at the year-end with these accounts were as follows:-
2008
2007
Board Members
- Loans and advances (a)
968,334
509,502
- Deposits
383,760
316,306
- Contingent liabilities, guarantees and other commitments
30,906
47,126
- Interest income earned from facilities granted to board members
49,165
26,006
- Other fees income earned from transactions with board members
5,956
1,433
- Interest paid to deposits accounts of board members
46,008
22,589
- Fixed and variable remuneration and meeting attendance fees paid
49,800
49,770
Parent/Subsidiaries companies
- Balance with bank/ customers’ deposits (b)
53,959
29,439
Associate company
1,344
607
567
195
- NBO’s deposit with the Group
- Bank’s deposit with NBO
- NBO’s contingent liabilities to the Group:
- Letter of guarantee : Performance bond
Tender bond
- Interest rate swap (notional amount)
- Interest rate swap (fair value)
Senior Management compensation
2,540
623
-
1,047
56,727
56,727
3,393
458
- Fixed remuneration
30,216
18,179
- Discretionary remuneration
15,729
9,500
- Fringe benefits
7,460
4,173
Number of staff in the Senior Management team as at 31 December 2008 was 31 (2007: 23).
Additional information
a)
A significant portion of the loans and advances balances at the year end with the members of the Board and the companies in which they have
significant interest are secured against tangible collateral or personal guarantees. Moreover the loans and advances are performing satisfactorily with
all obligations honoured as arranged. The pricing of any such transactions are primarily based on the banker customer relationship and the prevailing
market rate.
b)
Balance with Bank and Customers’ deposits between parent and subsidiaries companies including any income/expenses on those balances have been
eliminated on consolidation.
31 December 2008
32. CASH AND CASH EQUIVALENTS FOR CASH FLOW STATEMENT
81
2008
2007
1,425,370
Cash and balances with Central Bank*
1,463,741
Due from banks and financial institutions less than 90 days
2,805,427
3,261,902
Total
4,269,168
4,687,272
* Does not include the mandatory cash reserve with Qatar Central Bank.
33. FINANCIAL STATEMENTS FOR THE PARENT BANK
Parent Bank Balance Sheet
ASSETS
33,895,854
25,004,115
4,847,763
4,737,472
Investments in associate
3,641,486
3,329,900
1,135,898
720,743
Other assets
510,017
369,852
Total assets
61,351,356
45,426,480
LIABILITIES
10,922,352
4,907,188
Customers’ deposits 29,391,902
24,686,131
Borrowing under repurchase agreement
Other liabilities
2008
2007
3,015,278
2,248,847
14,305,060
9,015,551
781,226
-
6,096,091
7,623,105
1,333,891
867,067
48,525,462
38,083,491
2,847,931
1,109,022
51,373,393
39,192,513
31 December 2008
82
33. FINANCIAL STATEMENTS FOR THE PARENT BANK (continued)
Parent Bank Balance Sheet (continued)
EQUITY
Share capital
2,062,053
1,401,579
Legal reserve
5,923,600
2,915,499
General reserve
26,500
26,500
Risk reserves
Other reserves
Proposed dividend
Proposed bonus shares
Retained earnings
Total equity
2008
2007
(442,916)
188,340
638,300
346,300
325,933
171,903
1,443,437
560,632
-
420,474
1,056
202,740
9,977,963
6,233,967
61,351,356
45,426,480
Parent Bank Statement of Income
2008
2007
Interest income
2,690,440
2,241,103
Interest expense
(1,476,155)
(1,369,296)
Net interest income
1,214,285
871,807
Income from Islamic financing and investment activities
Net income from Islamic financing and investment activities
180,896
83,664
(106,413)
(30,625)
74,483
53,039
Fees and commission income
1,034,842
727,034
Fees and commission expense
(94,837)
(65,149)
Net fees and commissions income
940,005
661,885
Dividend income
Net gains from dealing in foreign currencies
130,630
83,449
276,030
205,772
Other operating income
76,501
17,916
522,269
346,080
2,751,042
1,932,811
Operating income
39,108
38,943
31 December 2008
Parent Bank Statement of Income (continued)
83
2008
2007
Depreciation
Recoveries of impairment losses on loans to financial institutions, net
Impairment losses on loans and advances to customers, net
Total operating expenses and impairment losses
(671,233)
(477,326)
(67,719)
(52,130)
2,466
2,240
(61,511)
(50,772)
(464,850)
(85,904)
-
(10,700)
(1,262,847)
(674,592)
Profit before share of associates’ results
Share of results of associates
1,488,195
1,258,219
207,585
133,492
1,695,780
1,391,711
Parent Bank Statement of Cash Flows
2008
2007
Cash flows from operating activities
Adjustments for:
Depreciation
Amortization of transaction cost
Impairment losses on fiancial investments
Profit from sale of assets
1,695,780 1,391,711
67,719 52,130
9,048 6,613
59,045 48,532
464,850 85,904
-
10,700
(28)
-
Share of results of associate
(207,585)
(133,492)
(276,030)
(205,772)
Profits before changes in operating assets and liabilities
1,812,799 1,256,326
31 December 2008
84
Parent Bank Statement of Cash Flows (continued)
2008
2007
Net (increase) decrease in operating assets
Other assets
Net increase (decrease) in operating liabilities
Other liabilities
458,824 152,571
Net cash (used in) from operating activities
(60,052)
1,230,199
Cash flows from Investing activities
Purchase of financial investments
(415,132)
(673,799)
(8,950,784)
(7,711,295)
(141,665)
(67,939)
731,226 (314,000)
6,444,680 8,588,335
(1,972,513)
(1,844,980)
(284,920)
(1,899,882)
Dividend received from associate
82,646 46,138
Proceeds from sale of financial investments
1,141,472 1,738,862
Purchase of property and equipment
(482,873)
(216,034)
Proceeds from sale of assets
Net cash used in investing activities 28 -
(1,516,160)
(2,175,896)
Cash flows from financing activities
Proceeds from other borrowed funds
1,375,938 5,264,404
Repayment of other borrowed funds
(2,912,000)
(1,783,600)
Net proceeds from issue of shares
3,248,101 -
Dividends paid
(560,632)
(981,106)
Net cash from financing activities 1,151,407 2,499,698
Net (decrease) increase in cash and cash equivalents during the year
(424,805)
1,554,001
Effects of foreign exchange fluctuation
13 10
Cash and cash equivalents at 1 January
4,683,884 3,129,873
Cash and cash equivalents at 31 December
4,259,092 4,683,884
31 December 2008
34. FINANCIAL STATEMENTS FOR THE AL SAFA ISLAMIC BRANCHES
85
Al Safa Islamic Banking - Balance Sheet
ASSETS
Cash balances
18,213
7,167
1,393,160
644,280
Due from customers for financing activities
2,420,551
919,553
Due from parent bank
Total assets
LIABILITIES
189,918
-
Customers’ current accounts
496,525
252,393
Other liabilities
CAPITAL FUNDING
2008
2007
141,265
81,933
-
24,529
31,180
10,051
Other assets
61,166
10,914
4,065,535
1,698,427
Capital funding from parent
Current year’s profit
Total capital funding
Total liabilities and capital funding
210,516
47,246
896,959
299,639
2,847,931
1,109,022
3,744,890
1,408,661
250,000
250,000
70,645
39,766
320,645
289,766
4,065,535
1,698,427
31 December 2008
86
34. FINANCIAL STATEMENTS FOR THE AL SAFA ISLAMIC BRANCHES (continued)
Al Safa Islamic Banking - Statement of Income
Income from financing activities
Income from investment activities
Total income from financing and investment activities
2008
2007
147,930
60,717
32,966
22,947
180,896
83,664
Fee and commission income
Fee and commission expense
Net fee and commission income
Dividend income
Net gains from dealing foreign currencies
Net gains from financial investment
14,082
(91)
(61)
24,334
14,021
574
-
4,126
35
450
3,417
5,150
3,452
Operating income
210,380
101,137
24,425
(28,105)
(28,170)
Depreciation
(3,281)
(1,323)
Impairment losses on loans and advances to customers (net)
(1,936)
(1,253)
Net profit
177,058
70,391
(106,413)
(30,625)
Net profit for the year attributable to owners
70,645
39,766

The Commercial Bank of Qatar (Q.S.C.) Annual Report 2008 Annual

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