Commercial Bank to de-risk legacy assets

DOHA: Commercial Bank, Qatar’s third largest lender in terms of assets, yesterday announced its strategic plan to reshape its operating models, which include de-risking of its legacy assets and diversifying of its loan book.
The bank which announced a 20.4 percent year-on-year net profit for the financial year 2017 on Monday, said  it would  be decreasing its real estate exposure from the existing 28 percent  to 26 percent and  would increase  exposure to public sector from the existing 10 percent to 13 percent.
“We will de-risk our legacy assets, diversify our portfolio and proactively exit high risk names”, Commercial Bank Group CEO Joseph Abraham said in a media roundtable.  “Our Wholesale banking division has exited QR2.8bn of high risk-names in 2016-17. Further exits are planned in 2018,” he added.
The Group CEO said the bank wants to make sure that it’s bringing its corporate earnings quality back to normal. “We have to make sure the quality of corporate earnings is back to at least market levels before outperforming in the long run,” he said.
Elaborating on the steps taken by the bank for the past 18 months with the support of the Board of Directors, Joseph said with taking closely QR3bn of provisions in 2016 and 2017, the bank’s loan book has been cleaned up for the legacy.
“We have to reduce our concentration in certain areas, where we are over-concentrating in the real estate sector. We have a long term programme to reduce it. Similarly, we are under-represented in key growth area , which is public sector and government, which collectively represents 30 percent of Qatari economy. Only 6-8 percent of our loans are in this sector. We are looking to increase our exposure to this sector by 16 percent”, he said.
Joseph said the bank is also looking to reduce the concentration on high-risk clients. The bank has already done a lot of de-risking in this sector for the past 18 months.
The bank expects its loan growth to be in line with the market. It expects a 7 percent to  9 percent growth for the current financial year.  In 2017, the bank grew its loan book by 14.8 percent. This is ahead of  the average market growth, which currently stands between 8-11 percent.
Joseph said the bank has made a drastic 19 percent cut in ‘unnecessary and wasteful’ administrative expenditure in 2017. “We will continue to drive costs lower through reduced waste while simultaneously investing in new technology and branches.”On Commercial Bank’s ongoing discussions regarding the potential sale of  its stake in United Arab Baank (UAB), Joseph said the bank has signed a 90 day exclusivity agreement with Tabarak Investment to negotiate terms of the transaction the sale of Commercial Bank’s stake in UAB. The exclusivity agreement has been extended to February 28, 2018.
He said the bank will inject additional capital in its Turkish subsidiary Alternatifbank  and focus more on Turkey to benefit from the growing Qatar-Turkey bilateral ties.