Al Khaliji Commercial Bank: Banking & financial services

The Company

Al Khaliji Commercial Bank, which trades as KCBK on the Qatar Exchange, is a conventional bank offering commercial banking services and products to corporate and retail customers. Incorporated in 2007 and listed on the exchange in August of that year, the bank offers commercial loans, trade and project finance, treasury services, consumer loans, current and savings accounts, time deposits, credit cards, e-cards, internet banking and phone banking services. As of April 2013, the bank had seven branches (two in Qatar, four in the UAE and one in Paris, France) and 29 ATMs (25 in Qatar and 4 in the UAE) in operation. Out of the listed banks on the Qatar Exchange, Al Khaliji has a market share of 2.8% and 3.6% in loans and deposits, respectively. Pursuant to its incorporation, Al Khaliji acquired 100% of Paris-based BLC Bank France, along with its branch network in the UAE, from Qatar Holding. This acquisition opened a window of opportunity both regionally and internationally for the bank to capture trade flows between Qatar and Europe, as well as between the UAE and Europe. With a solid shareholder base, Al Khaliji enjoys strong support from the Qatari government as is evident from the 42.16% stake held collectively by sovereign institutions. With a liquid balance sheet, Al Khaliji is well positioned for growth. The bank is flush with liquidity, with its liquid assets to total assets averaging 51% over the past three years. As a result of the bank’s liquid position, management is able to take advantage of lucrative deals by liquidating a portion of its investment holdings and redeploying them in higher-yielding loans. To take advantage of Qatar’s expected loan growth, Al Khaliji is focusing on expanding its balance sheet. During October 2013 the bank issued $500m in senior unsecured notes as part of its $750m Euro Medium Term Note programme.

Financial Forecast

We estimate net operating income to grow at a compound annual growth rate (CAGR) of 8% (2012-17e). We also expect growth to come from net interest income, growing at an estimated CAGR of 16.9% (2012-17e).

The ensuing growth is based on our assumption of an expansion in the loan book by an estimated CAGR of 18.2% (2012-17e). Furthermore, we estimate the bank will register a CAGR of 12.5% in net profit for 2012-17e. We envision Al Khaliji is going to grow its net income by deploying its funds in infrastructure projects (real estate segment) and the corporate segment. On the other hand, the bank is not expected to chase after mass retail, but will focus on ultra-high and high-net-worth individuals RISKS: One risk is that Al Khaliji’s market share gains do not materialise, while others relate to an untested loan book and asset quality. The bank also faces concentration risk and general risks rising from regional socio-political issues.

Development Strategy

Al Khaliji should benefit from the boom in infrastructure and construction activities. A three-year strategy has been devised from 2013 to 2015 to bolster the bank’s position within corporate banking, the public sector and infrastructure financing space. Al Khaliji has invested and upgraded its infrastructure, product range and enhanced its workforce by attracting new talent into its fold. Management strategy is to build a reputation as a banker of choice for corporates, improve market share and in turn lift return on average equity to 15%, which would be up from 9.3% in 2012. We envision the private sector will play a significant role in the implementation of Qatar’s National Development Strategy. As such, the banking sector will be one of the primary beneficiaries and a major driver of Qatar’s infrastructure and construction boom, as current and future projects need to be financed. Given Al Khaliji’s focus on Qatar, we are confident that the bank would benefit from what Qatar has to offer. It also wants to leverage its regional (UAE) and international (France) footprint to gain more business in the form of capturing trade flows (Qatar/Europe, UAE/Europe and Qatar/UAE).