In 2007 QNB had made significant expansion in terms of its overseas representation. It opened three new branches during the year in Yemen, Oman and Kuwait increasing the number of overseas branches to five. It already has branches in London and Paris. Apart from Iran, two additional representative offices were opened in Libya and Singapore for a total of three.
As part of its expansion plan, QNB acquired 30.5% stake in the Jordan-based. The Housing Bank for Trade and Finance (HBTF). The bank has operations in Palestine, Bahrain, Algeria, Syria, UAE, Libya and Iraq, in addition to Jordan.
QNB has signed an agreement with other Syrian private and public sectors institutions to jointly establish the Qatar National Bank-Syria with 49% stake.
Another major accomplishment is the successful completion of the largest and most competitive syndicated loan in the region that amounted to US$1.85bn, in which a large number of major financial institutions participated.
During 2007, QNB launched a group of various products and services. This included its new priority banking service, "QNB First" and "business banking services" where customer needs are pursued on daily bases. The Bank also launched a promotional campaign that go along with its services and products. It also launched a new service EAZYLife that include a range of e-banking services available 24 hours a day through the internet.
During October 2007, QNB decided to increase its share capital through the issuance of a rights issue that began for two weeks starting from November 4th. The first phase of the rights issue included the issuance of 1 share for every 8 shares held (12.5% of share capital) at a price of QR120 per share that includes the nominal share price of QR10 per share and a premium of QR110. The second rights issue commenced in April 2008. During the second phase of the rights issue, the bank issued one share for every 10 shares held (10% of capital), at a price of QR120 per share, which includes a nominal share price of QR10 and a premium of QR110 per share.
The bank issued 20% bonus shares for the year 2007, therefore, with the bonus issue and second rights issue the bank’s equity capital will increase to QR2.41bn.
Financial Performance
The total assets of the bank grew by 59.6% in 2007 to QR114.4bn. Among the major asset components, gross loans & advances grew by 42.3% to QR66.5bn. The bank’s NPLs as a percentage of gross loans have been declining over the last few years, which was despite the growing loan book and declining exposure to the government sector. Its NPLs declined by 18.4% to QR451.1mn in 2007 from QR553mn in 2006. NPLs as a percentage of gross loans declined to 0.7% in 2007 from 1.2% in 2006.
Chart : Quality of Loan Portfolio
Source: QNB Annual Reports and Global Research
During 2007, the total interest income of the bank from conventional banking activities grew by 36.1% to QR4,622.7mn. The bank’s total interest cost grew by 59.1% to QR2,855.2mn and net interest income from conventional banking activities grew by 10.3% to reach at QR1,767.6mn. QNB registered a y-o-y growth of 25.4% in its bottomline to QR2.5bn over QR2.0bn reported in 2006. During 2007, the bank also realized some of its bad debts which led to net reversal of provisions for loans and advances to the extent of QR19.7mn whereas last year the net reversal of provision was at QR139.2mn.
During Q1-2008, interest income grew by 42.1% y-o-y to QR1,416.2mn while interest expense registered a steep y-o-y growth of 65.9% to QR903.3mn. With this the net interest income of the bank registered a y-o-y growth of 13.4% to QR512.9mn. The bank reported a y-o-y growth of 40.5% in its net profit to QR917.3mn as compared to QR652.8mn reported in Q1-2007. On the balance sheet side, on a y-t-d basis, total assets registered a growth of 13.7% to QR130bn, loans & advances grew by 17.1% to QR77.4bn and customer deposits increased marginally by 0.2% to QR79.5bn.
QNB is considered as one of the best banks in Qatar considering its sound assets portfolio., which we believe that will continue to remain its main focus area despite significant growth in its loan portfolio over the last few years. Apart from its strong presence in home turf, we believe that its expansion strategy to having its presence in Oman, Kuwait, Yemen, Jordan, Iran, Libya, Singapore are in right direction.
At the same time the bank’s capital expansion through the recent rights issues will allow the bank to leverage its balance sheet. This will help the bank to finance its regional expansion plan and ensure that it is adequately capitalized at all times to meet the diverse needs of its rapidly expanding business at home and overseas.
At the current market price (April 27, 2008), the bank trades at 15.5x and 12x of its earnings and 3.2x and 2.9x of its book value for FY2008E and FY2009E respectively. The estimated fair value for QNB works out to QR267 based on the DDM and peer group valuation methods, which is 16.1% above the market price on April 27, 2008. Hence we reiterate our earlier rating on the stock and recommend a “BUY”.
