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Satyendra Pathak
Doha
Change in strategy by Commercial Bank (CB) has resulted in the bank outperforming its peers with an outstanding gain of 41.5 percent in stock price since the start of the current financial year, QNB Financial Services (QNBFS) has said in its latest company report.
According to the report, the bank has exited risky exposures to the tune of QR3.7 billion in the first nine months of 2018 against QR2.8 billion in the same period last year.
Further exits are in the pipeline, the report said adding the management has been de-risking its books and the legacy non-performing loans (NPLs) have been provisioned.
"Diversify and de-risk the loan book is still in focus. The bank intends to reduce its real estate exposure in the loan book and so far it stands at 26 percent. On the other hand, it is approaching the public sector to account for at least 10 percent of its loan book," the report said.
Moreover, the report said, the bank generated positive JAWs of 12.6 percent in the first nine months of this year.
"Improving efficiency is part of management's strategy by reducing cost-to-income (C/I) ratio to as low as 30 percent and they have been delivering. Our estimates for C/I ratio remain unchanged, in-line with management's guidance," the report said.
"Guidance for C/I ratio has changed for the better. The bank posted C/I ratio of 33.5 percent excluding investment income in the first nine months of 2018 against 37.1 percent in the same period of the previous year," the report said.
"Objective of management is maintaining common equity tier 1 (CET1) ratio between 11 percent and 11.5 percent which has not changed. Management is expected to achieve these levels by adopting a dividend payout policy which would maintain the bank's core ratios without further capital hikes," the report said.
The bank's CET1 ratio dropped to 9.7 percent in the first nine months of 2018 against 11.2 percent in 2017, the report said.
"Based on our estimates, we expect the bank to generate a CET1 ratio of 11 percent in 2018 and 2019. This scenario is possible even with marginal increases in dividend per share (DPS). We still maintain our DPS estimate of 1.5 percent," the report said.
"We maintain our market perform rating on the bank with price target to QR35 per share," QNBFS said in the report.
