Qatar Islamic Bank: Banking

THE COMPANY: Qatar Islamic Bank (QIBK on the Qatar Exchange) is the third-largest bank in the country, with an 8.4% market share in terms of total assets in 2011, as well as the largest Islamic bank. Established in 1982, QIBK has a presence in Qatar and overseas, including Europe, Asia, the Middle East and North Africa QIBK’s operations include several subsidiary and associate companies. Al Aqar Real Estate Development and Investment is a 49%-owned subsidiary that is involved in property investment, development and management, brokerage and consultancy services in the local real estate sector. QIB (UK) is a 70%-owned Islamic investment banking subsidiary, offering various services such as asset management, corporate finance, real estate and treasury. QIB Sukuk Funding is a fully owned financing subsidiary that acts as the issuer and trustee for trust certificate holders and operates as a special purpose vehicle. QI nvest is a 46.7%-owned subsidiary that provides the entire suite of investment banking services in accordance with sharia principles. QIBK’s associate companies include Al Jazeera Finance, Durat Al Doha, Retaj Marketing and Project Management, Al Daman Islamic Insurance, Panmure Gordon, Asian Finance Bank and Arab Finance House. QIBK reported net profit of QR349.2m ($95.9m) for the second quarter of 2012, down 8.7% year-on-year (y-o-y) from QR382.5m ($105m) in the same period in 2011. The main cause of this decline was the impairment on financial investments and other receivables, where the bank booked a charge of QR116.8m ($32.1m). Income from financing activity increased by 21.7% yo-y and 0.8% quarter-on-quarter (q-o-q). The negligible growth on a q-o-q basis is surprising given the strong 12.1% quarterly growth in the loan book. Income from investing activity decreased by 6.3% y-o-y but was up 5.1% on a q-o-q basis. Net commission and fee income for the period was QR114m ($31.3m), up from QR56m ($15.4m) in the second quarter of 2011, an increase of 105.4%. On a quarterly basis, the growth was 14.6%. Payments to unrestricted investment account holders increased by 25.6% y-o-y and 16.5% q-o-q for the second quarter of 2012. General and administrative expenses were up by just 1.0% q-o-q. The high provision charge in the second quarter came as a surprise as provisions usually peak in the final quarter of the year. The higher-than-expected loan growth has resulted in a loan-to-deposit ratio of 107% in the second quarter of 2012, compared to 93.4% a year earlier.

Net profit in 2011 grew by 8.2%, equivalent to a rise of QR102.9m ($28.3m). The primary driver for the improved performance was income from investment returns from sukuks. Net fees and income increased by QR10.8m ($3m) y-o-y. Equity of unrestricted investment account holders’ share from net profit declined by QR37m ($10.2m) y-o-y, while sukuk holder’s share of profit increased by QR81.3m ($22.3m) over the same period. The bank announced a cash dividend of QR4.5 ($1.24) per share in 2011. Total assets rose by 12.4% to QR58.3bn ($16bn) in 2011. The growth was driven by an QR11.4bn ($3.1bn) increase in financial investments, primarily in sukuks, which rose by QR9.9bn ($2.7bn). On the other hand, investments with banks and financial institutions declined by QR5.1bn ($1.4bn) y-o-y, while equity of unrestricted investment account holders fell by QR3bn ($824m). The growth in assets was funded by QR4.9bn ($1.3bn) y-o-y growth in borrowing from other financial institutions and by QR2.2bn ($604.1m) y-o-y increase in shareholder equity.

DEVELOPMENT STRATEGY: QIBK has emerged as a leading corporate and investment bank in Qatar. The lender aims to build on its global reputation within the Islamic financial services industry through organic growth in the local market, regional expansion and strategic alliances to become the leading supplier of Islamic banking solutions. Key opportunities include market share growth within public sector volumes, corporate and high-net-worth lending, product innovation and geographical diversification. Increased competition could have an impact on profits, and the high exposure to the real estate segment could be a concern.