Wednesday 15, March 2017 by Georgina Enzer

Qatar First Bank records net loss for FY2016

Qatar-based Shari’ah compliant bank, Qatar First Bank L.L.C. (Public) “QFB”, has recorded a net loss of QAR 265.6 million resulting mainly from the downward revision of the valuations of some of the Bank’s investments across several markets, according to the bank.

Despite the write-down of the investment book, the bank’s total assets did not decline and closed at almost QAR 6 billion, mainly driven by the increase from financing assets. Moreover, the investment portfolio continued to generate healthy dividends (QAR 13 million). Additionally, financing assets increased by 33 per cent, and will generate recurring income during the coming years. QFB’s Sukuk book continued to generate positive returns close to QAR 30 million. Last but not least, the bank’s income from placement with financial institutions has tripled mainly from cash deployment in Shari’ah compliant money market funds.

“Our private equity portfolio had consistently generated significant returns over the last six years. Our Turkish investments are still 47 per cent higher than their acquisition price and will continue to grow in sales and profitability and occupy leading positions in their respective industries of Healthcare and Retail. Additionally, our UK investments are still significantly above our acquisition costs, both in Pounds and Riyals. However the ongoing global political and economic conditions continue to weigh on our markets and as a consequence on our overall profitability. Our 2016 revenues have been significantly affected by reversals of previous years’ fair value gains on our Private Equity investments, specifically in Turkey and the UK, resulting in overall losses of QAR 265.6 million, the majority of which are unrealised,” said QFB’s CEO, Ziad Makkawi.

As the global investment market continues to go through major challenges since the beginning of 2016, QFB’s private equity portfolio has been negatively impacted by country-specific events mainly in Turkey and the UK. The decrease in the valuation of the bank’s investments reflects the effect of the macroeconomic and extraordinary factors that both countries have been facing. The main impact came from the depreciation of currency, British Pound Sterling and Turkish Lira, against the US Dollar and from the weakness of the real estate sector in the United Kingdom.

“We continue executing on our strategy, announced in 2015, that streamlined the bank to focus on the most lucrative areas while building on the successes in the Private Equity area, being QFB’s core business line. Our aim is to fully match the evolution of Qatar and the wider region’s investment direction, as well as act as the gateway for investors looking to access lucrative investment opportunities alongside QFB,” said Makkawi. “2017 remains a “buyer’s market” offering an increasing amount of investment opportunities. With credit markets still tight, medium sized enterprises and businesses will continue to seek alternative funding sources and private equity investors will benefit from this. Our focus will continue to be on the Alternative Investment space including private equity and real estate and generating interesting investment Shari’ah compliant products. Additionally, we will continue to grow our distribution and placement capability, in Qatar and beyond in the GCC.”

QFB aims to develop a distribution and placement capability that is empowered by its client centric approach. Investment opportunities and financial solutions are personalised to the goals and risk profile of both individual and corporate clients. To support this initiative, the bank has signed several agreements with internationally recognised players expanding the range of offerings to meet the changing needs of clients across several markets.

Whilst the current volatility in the global markets has impacted the bank’s business, QFB continued to successfully manage its existing portfolio, as well as seeking out new lucrative opportunities. The management is confident that they will perform well in the years to come.

In line with QFB’s strategy, the bank will continue to seek exits on its existing investment portfolio book with the objective of maximising value to shareholders and clients at opportune times; and to reinvest the proceeds in lucrative opportunities that will contribute positively to the bank’s returns.

QFB’s current portfolio of alternative investments are within various sectors including healthcare, energy, consumer finance, real estate, industrial, retail, luxury, food & beverage; spread across diversified geographies. Since its incorporation, the bank has closed a number of successful transactions across Qatar, Turkey, the United Kingdom, Africa and the MENA region with carrying value of total equity investments (including subsidiaries) of QAR 1.53 billion (31 December 2016). Over the years, the team has successfully exited six investments, in addition to three partial exits, and generated healthy returns to Shareholders with an average IRR of 36 per cent.

“QFB’s strategy focuses on our role as a trusted advisor, a gateway for investors who wish to tap into innovative, Shari’ah compliant, investment opportunities in local, regional and global markets. We will continue to diversify our portfolio, tapping into new and attractive geographical markets. We are well positioned to provide capital solutions to growing businesses in the region, utilising our expertise and network. We look to partner with market leaders, private and institutional investors, attracting third party money with the objective to create value while following international best practice and the highest levels of corporate governance,” Makkawi said.

QFB will continue working with its strategic shareholders and clients, enabling the bank’s team to benefit from the wider network and from access to regional and international markets.

QFB’s management confirms the launch of the second phase of its cost rationalisation plan, originally launched in June 2016. The objective is to continue raising efficiency levels through strict and tight cost cutting measures including strategic reduction to the workforce caused by the consolidation of the placement and distribution capabilities of the bank’s corporate and private banking business lines; which going forward will focus more on fee generating services. The aim is to focus on capitalising on the bank’s human resources and maximising their experience to boost performance during the coming years. Moreover, the efficiency action plan will enable accelerating the focus on business lines that are expected to generate income, and hence raise shareholders’ value and enhance profitability levels.

“In line with the current market conditions and in order for QFB to emerge as a more efficient and productive contributor to Qatar’s financial market, we have undertaken important cost rationalisation initiatives touching upon both staffing and business related expenses. We believe that the quality of our business is not only evaluated on the ability to generate revenues but also in the efficiency of the support services,” said Makkawi.

Since the beginning of 2016, QFB has been witnessing strategic achievements marked by listing the bank’s shares on the Qatar Stock exchange, following the approval of the Qatar Financial Markets Authority (QFMA). Following this significant milestone, QFB has leveraged on the in-house and international breadth of investment solutions and structuring capabilities to offer an attractive range of products and services. The bank announced the placement of the ‘Ijarah Aviation Structured Product’ that was met with great enthusiasm by individual and institutional clients. Additionally, the bank’s team of professionals catered clients with a wide range of investment opportunities and innovative financial solutions to grow, manage and protect their wealth and assets. Besides, QFB, after the completion of its second residential project in London, announced offering specialised real estate services to individuals and corporates seeking to add value to their portfolios by owning, occupying and investing in real estate across the world. Last but not least, the bank continued to focus on liquidity optimization through the interbank market and money markets. Also, the team was actively involved in investing and managing the Sukuk book which continued to perform well and growing its private equity deal pipeline.

“2016 was a difficult and challenging year for QFB and our shareholders. However, the changes instituted are the necessary first steps in laying the foundations for a successful future. We recognise that there is still a considerable amount of work to be done, but we take comfort in the prospect of new business opportunities after refocusing our efforts on alternative investments. In particular, the combination of capabilities in private equity, real estate, and product structuring solutions; with dedicated origination and placement capacity; will create a leading force that we hope to produce genuine growth and profitability for the bank,” said Makkawi.

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