Commercial Bank of Qatar launches 5-year plan to stem losses

Commercial Bank of Qatar will cut its exposure to the property market and lend more to the public sector as it set out a turnaround plan under its new chief executive aimed at stemming a dismal earnings run as more loans soured.

The Gulf Arab state’s third-largest lender by assets, like other banks in the region, has seen bad loans rise steeply due to the fallout of lower oil and gas prices on the wider economy, which has forced cutbacks in state and consumer spending, as well as layoffs in a number of industries.

The five-year plan follows a review by its new chief executive Joseph Abraham, a former Australia and New Zealand Banking Group banker, aimed at halting five consecutive quarters of falling profit. The lender reported a near-tripling of net impairment charges against bad loans to 504.9 million riyals ($134.62 million) in the third quarter.

The bank said it aimed to cut its non-performing loan ratio to the market average of 2 percent from 5.3 percent currently.

In a presentation circulated to investors, it expects further writedowns this year and next, and plans to tighten underwriting standards and improve asset quality by diversifying into other sectors and countries.

The bank aims to cut its real estate exposure from 23 percent currently to a maximum of 16 percent, while raising its share of exposure to the government and public sector from 8 percent now to a minimum of 16 percent.

Arqaam Capital said in a note that it was cutting its earnings per share forecasts for the bank for the full year of 2016 and 2017 as a result of net interest margin pressure stemming from the shift from property to public sector lending and continued writedowns.

Other ratios CBQ said it aimed to boost were its earnings per share, return on equity, return on assets and Tier 1 level to the market average of 15.1 percent from the existing 13.6 percent.

The bank sought approval this month for a 1.5 billion riyals rights issue, an action it said in the presentation would raise its Common Equity Tier 1 ratio, a key measure of a lender’s ability to absorb losses, from the current level of 10 percent.