2012 moody's ratings review
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Management Presentation2012
Management Presentation
Moody’s Investor Services
Contents
A: QIIB Overview and Strategy B: Qatar Economic / Banking Sector / Regulatory Updates C: Retail Banking D: Corporate Banking E: Investments F: Funding / Liquidity & Treasury G: Risk Management / Credit and Asset Quality H: Financial Performance / Capital
Appendices Appendix A: Risk Management Appendix B: Credit
2
A. QIIB Overview & Strategy
Sharia’ Board
Mission, Vision & Values
Mission
To be one of the most efficient Islamic Banks in Qatar and in the region, and the FIRST choice for customers, and to perform according to the best global standards
Vision
Customers: To fulfill our customers’ banking needs in compliance with Shari’a principles, through best banking practices and highest professional standards
Shareholders: To achieve fair and rewarding returns for our shareholders and depositors
Employees: To create a fair and motivating work environment for our employees
Responsibility: To be an effective corporate citizen and shoulder our responsibility to help develop our community and assist all our stakeholders
Values
Belonging: a sense of responsibility towards our customers, employees and shareholders and the Qatari society as a whole.
Distinction: Performance in accordance with best practices to realize full customer satisfaction.
Development: To enhance performance, evolve employees’ training, apply technological advances and reward distinct performance and team work.
Transparency: Ensure open and clear communications channels in regards to our performance.
Sound Planning: To manage effectively and gauge performance objectively.
Confidentiality and Information Security: In accordance with the highest professional standards
4
QIIB Overview
1997 2001 2001 2003 2005
Emiri Decree to establish QIIB and Opening of the Bank
Sponsor for Islamic Banking Conference
First credit card (M/C) issued and participation in WTO Doha
Shifted to new HQ in Grand Hamad
Issuance of Qatar Global Sukuk
Launch of Bank’s new logo
2006
Awarded Best Bank (SWIFT STP) by Wachovia Bank
Corporate Overview
1991
Equity participation, private equity, investment funds
Sukuk (Sharia-compliant bonds) investments
International finance and syndications
Large retail franchise with 15 branches; 16 branch approved by QCB
Strong brand; attracts and maintains diversified and loyal deposit base
Client segmentation to provide client-focused services
Maintain growth in distribution network Focus on sales and service quality
Major sectors served include real estate, government, oil & gas, commercial and contracting
Key partner of the public sector and continues to attract and maintain strong deposit base
Key products include: murabahah, musawamah, mudarabah, istisna, foreign trade finance and commerical finance
Retail Banking Corporate Banking Investments
Rating with Capital Intelligence
2008
5
2011 2012
Ratings assigned by Fitch and Moody’s
World Finance Award for Best Islamic Bank in Qatar
Shareholding
6
Nos Name % Ownership
1 Sheikh Thani Bin Abdullah Al-Thani Family * 22.6%
2 Qatar Investment Authority (QIA) ** 16.7%
3 Abdullah Mohammed Shmeisan Al Sada 1.7%
4 QNB Fund 3 1.0%
5 QNB Fund 4 0.9%
6 Ziad Hosny Zeidan 0.7%
Total Shareholding for top shareholders 43.6%
*Sheikh Thani Bin Abdullah Al-Thani Family holds their 22.6% stake via a series of 15 corporate entities holding between 1.1% to 1.6% each. Sheikh Thani is also the founder of the Bank, and the father of the current Chairman, Sheikh Dr Khalid bin Thani bin Abdullah Al-Thani.
** QIA is the principle investment arm of the government of Qatar.
Shareholding: Relationship
Key Shareholders
Close and long Links
Strong and established relationship
Involved in governance
and planning
Support development
and expansion
7
Board of Directors
Board of Directors
Date of Appointment: May 1996.Educational Qualifications: BA, MBA (USA), PhD (UK), Current Directorships: Qatar Islamic Insurance Company, Medical Care Group, ARCAPITA (Bahrain) and Ezdan Real Estate Company
H.E. Shk. Dr. khalid Bin Thani A. Al.ThaniChairman & Managing Director (Executive Director)
Dr. Yousuf Ahmed Al-Naama (Non Executive Director
H.E. Shk. Abdullah Bin Thani Bin Abdullah Al Thani Vice Chairman (Non Executive Director)
Date of Appointment: May 2002Educational Qualifications: BComm Current Directorships: Al Wefaq, Medical Care Group, Qatar Islamic Insurance Company and Ezdan Real Estate Company
H.E. Shk. Khalifa Bin Thani Bin Saud Al Thani Vice Chairman (Non Executive Director)
Date of Appointment: May 1996 Educational Qualifications: BA (Qatar) Current Directorships: Authority for Minors Affairs and Islamic Facilities Company
Mr. Abdullah Mohamed Abdul Raheem Al Emadi (Non Executive director)
Date of Appointment: Dec 2005Educational Qualifications: BBuss (Egypt) Current Directorships: Qatar Islamic Insurance Comp and Islamic Facilities Comp
Mr. Hisham Mustafa Mohammad Sahtari (Non Executive Director)
Date of Appointment: April 2008 Educational Qualifications: Bachelor of Architecture Current Directorships: Ezdan Real Estate Company
Date of Appointment: May 1996. Educational Qualifications: Ph.D (Law) Current Directorships: Islamic Securities Market (Qatar), Gulf Holding Company, Syrian Islamic Insurance Company and Syrian International Islamic Bank
Mr. Ali Abdul Rahman Al Hashmi (Non Executive Director)
Date of Appointment: Feb 2007Educational Qualifications: MBA (UK) Current Directorships: Makeen Holding, Islamic Securities Company and Ritaj
Mr. Abdullah Mohamed Saif Al Suwaidi (Non Executive Director)
Date of Appointment: April 2008 Educational Qualifications: Senior Matriculation Current Directorships: Qatar Islamic Insurance Company
Mr. Abdul Basit Ahmed Al Shaibei (Executive Director)
Date of Appointment: Jan 2009 Educational Qualifications: BBuss (USA) Current memberships in boards of directors: -Islamic Securities Company, Medical Care Group, and Gulf Cement Company
8
QFMA Requirement for independent directors:
• At least 3 members of the Board should be independent
Achieve a growth rate in financing assets and investments of 15% - 20% per annum for the next 5 years Achieve a growth rate in customer deposits of 15% - 18% per annum for the next 5 years Achieve a net return (payable dividend) on paid-up capital of 40% - 45% per annum for the next 5 years Achieve 1% growth in market share annually
Resources
Develop a superior customer service experience to increase customer satisfaction Expand the Bank’s geographical presence locally to provide the Bank’s customers with wider and easier access to
the Bank Be a recognised social and community development contributor in the communities in which the Bank operates
Acquire and maintain a good credit rating from an internationally recognised credit rating agency to enable wider access to international capital markets and better financing costs
Diversifying risk and widening revenue sources by identifying suitable new international markets for investment and business opportunities
Enhance the existing risk management framework and processes to support the Bank’s strategic plans Simplify and streamline workflow and operating processes for improved efficiency and control Maximise the use of existing and planned IT capabilities to meet the Bank’s business and operational requirements Implement processes to critically analyse and monitor cost utilization and investment
Support the national Qatarisation effort by achieving an average Qatarisation of 35% - 45% over the next 5 years Develop a strong corporate culture in accordance with the Bank’s core values and mission/vision statements Revise job families for alignment with the Bank’s strategy to develop the competitive skills for the Bank in support of
its strategic plans Enhance the remuneration and rewards process to ensure that high-performing staff are adequately rewarded Enhance training and development plans which, together with the rewards process, will help to improve staff
productivity
Financial
Customer
Operational
Corporate Strategy: Overview
9
Corporate Strategy: Financial & Customer
Develop Superior Customer Service
Experience
Develop cust. svc. excellence
framework
Expand Bank’s Geographical Presence
Locally
Retail BankingBusiness
Banking (SME)Corporate Banking
Develop “One Stop Shop”
banking
Develop cust. svc. excellence
framework
Improve relationship
mgmt capability
Develop “One Stop Shop”
banking
Develop cust. svc. excellence
framework
Improve relationship
mgmt capability
Establish market intelligence capability
Increase number of branches and
ATMs
Increase/Enhance e-
Banking services
Establish marketing team
Finance
Develop bus. support/control
function
Social / Community Development Contributor
Financial Customer
Financing Asset/Investment Growth
15% - 20% Annually
Increase Asset Portfolio > 20%
Annually
Customer Deposit Liability Growth 15%
- 18% Annually
Net Return (Dividend) on Paid-Up Capital of 40% -
45% Annually
Retail BankingBusiness
Banking (SME)Corporate Banking
International Investments
Increase Deposits > 20%
Annually
Increase Asset Portfolio > 20%
Annually
Increase Deposits > 20%
Annually
Achieve QR1mio fee & comm.
income Annually
Provisions <1% of overall credit
balance
Increase Asset Portfolio > 20%
Annually
Increase Deposits > 20%
Annually
Provisions <1% of overall credit
balance
Achieve QR20 mio fee & comm. income Annually
Revenue > QR 20-25 mio Annually
Finance
Enhance finan’l performance
mgmt function
Achieve market share growth of 1%
annually
10
Sharia’ Board
Corporate Strategy: Operational & Resources
Operational Resources
Acquire/Maintain
Credit Rating
Lead credit rating project
Diversify Risk/
Revenue Sources
Enhance Risk Mgmt
Risk Mgmt OperationsInformation Technology
International Investments
Finance
Enhance risk monitoring /
diversification
Re-engineer processes for
greater efficiency
Automate manual workflow
pocesses
Lead credit rating / expand
int’l network
Process re-
engineer
Automate Processes
Cost / Investm’nt Controlling
Diversify int’l investment
portfolio
Diversify through international expansion
Develop / enhance MIS
function
Establish cost / investm’t control
functions
Upgrade risk management
framework
Qatarisation at 35% - 45%
Develop corporate culture from core values
Develop Competitive
Skills
Human Resources
Create motivating & supportive work
environment
Ensure commensurate remuneration &
rewards
Enhance training & development
Establish an integrated performance
management system
Develop HR strategic systems to enhance
competency/leadership
Increase national manpower (Qataris)
Realise highest return on investment in
training
Modernise HR dept. with latest HR
concepts, trends
11
Organization Chart – Board Level
Staff Numbers: The bank current employs on a fulltime basis c. 360 people.
BOARD OF DIRECTORS
MANAGING DIRECTOR
CHIEF EXECUTIVE OFFICER
SHARIA
SUPERVISORY
COMMITTEE
RISK
COMMITTEE
INTERNAL AUDIT,
COMPLIANCE &
GOVERNANCE
COMMITTEE
PAST DUE &
RESERVES
COMMITTEE
POLICIES &
DEVELOPMENT
COMMITTEE
SECRETARIATE
BOARD OF DIRECTORS EXECUTIVE
COMMITTEE
RISK
MANAGEMENT
INVESTMENT AUDIT
OPERATIONAL AUDIT
CORPORATE GOVERNANCE
COMPLIANCE &
AML
SELECTION &
COMPENSATION
COMMITTEE
FINANCIAL
ADVISOR
INTERNAL
AUDIT DEPT.
SHARIA AUDIT
CEO
COMMITTIES
LIMITS COMMITTEE
ASSETS & LIABILITIES
COMMITTEE
INFORMATION SECURITY
12
Organization Chart – CEO Level
INFORMATION
SERVICES
CHIEF EXECUTIVE OFFICER
PROGRAMMING
INFORMATION
SERVICES MANAGER
BOD SECRETARIATE
FINANCIAL
SECTOR
SUPPORT
SERVICES
OPERATIONS NETWORKS HELP DESK
TREASURY &
CORRES. RELATIONS
ENGINEERING
AFFAIRS &
PROJECTS
COMMUNI-
CATIONS ADMIN .
SERVICES
EXTERNAL
INVESTMENTS &
Portfolio
LEGAL
AFFIARS
HUMAN
RESOURCES
INVESTMENT
SECTOR
DEPUTY CEO
13
Organization Chart – Deputy CEO Level
DEPUTY CEO
CORPORATE BANKING SERVICES
CHIEF OPERATING OFFICER
DEVELOPMENT, POLI-
CIES & PRODEDURES RETAIL BANKING
SERVICES
BRANCHES & RE-
TAIL BANKING
PHONE BANKING
FOLLOW UP &
COLLECTIONS CALL CENTRE
COMMERCIAL
FINANCE
MARKETING &
CUSTOMER RELATIONS
14
Corporate Governance
Strong Corporate
Governance
Committee Level
Executive
Past Due and Reserve
Compliance and Governance
Selection and Compensation
Policy and Development
Risk
Sharia Supervisory
ALCO
Investments
Provisions
Finance
Board Level
Board of Directors
Sharia BoardExecutive Level
Chief Executive Officer
Deputy Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Internal Audit
Line Managers
15
Banking Products: Overview
Most Popular
Murabaha
Musawama
Ijarah
Ijarah
Murabaha / Musawama
Istesna / Mudaraba
Musharaka
Wakala
Note: These products are provided to Retail, Corporate and Commercial (SME’s) customers
16
Branch Network
15 branches across Qatar: Al Kharaitiyat New Al-Rayyan Old Al-Rayyan Al Gharrafa Bin Omran Al-Ahli Hospital West Bay Al-Merqab Al-Muntazah Main Office / Grand Hamad Al-Emadi Hospital Al-Hilal Doha Airport Al-Wakra (not marked on map) Salwa Road
Supported by 60+ ATMs
17
B. Qatar Economy / Banking Sector /Regulatory Updates
Supported by the Natural Gas Sector and growth in the Non-oil and Gas sector Qatar’s economy is expected to witness continued strong growth in 2011 and 2012
(US$ million) 2009 2010 2011*
Oil & Gas Sector 43,809 65,864 ***
Non-Oil & Gas Sector 53,989 61,468 ***
Total Nominal GDP 97,798 127,332 172,000
% Change (year-on-year) -15.2 30.2 35.1
Real GDP growth rate 12.0% 16.6% 18.2%*
Source: Qatar Statistics Authority.* Estimates
Qatar Economic Update
19
Comprised of six local conventional commercial banks, four Islamic institutions, seven branches of foreign banks and one development bank
Steady growth in assets and lending, fueled by increased economic activity in recent years
According to the IMF, the local banking sector has relatively good asset quality, is well capitalized and has maintained good profitability
“Stable” outlook provided by Moody’s, S&P and Fitch
Proactive assistance by local authorities further enhances already strong health of banking sector
Lending concentration limits and robust borrower qualification framework
Short term liquidity facilities in place through Qatar Central Bank to address potential market disruptions
Financial support provided by the State of Qatar via equity injections and purchase of investment portfolios
Strong liquidity and capitalization comfortably above regulatory requirements
Sound and Healthy Banking Sector
Segment 2008 2009 2010 2011
Total Assets (US$ bn) 111.4 129.4 157.0 191.8
Finances & Advance (US$ bn)
66.7 74.4 86.4 110.9
NPL Ratio (%) 1.2% 1.7% 2.0% 1.7%
Deposits (US$ bn) 58.4 67.9 84.3 99.9
CAR (%) 15.4% 16.1% 16.1% 20.6%
Source: Qatar Statistics Authority
Qatar Banking Sector Overview
Key Features Qatari Banking Sector Snapshot
20
Type of Bank InstitutionAssets as at31 Dec 2011
(QR millions)% Share of Total Banking Assets
Islamic Banks
Qatar Islamic Bank 58,286 8.4
Masraf Al Rayan 55,271 8.0
Qatar International Islamic Bank 23,358 3.4
Total Listed Islamic Banks 136,915 19.7
Total Islamic Banks’ Assets 161,226 23.2
Conventional Banks (selected)
QNB 301,955 43.5
Commercial Bank 71,540 10.3
Doha Bank 52,420 7.6
Al Khaliji 27,003 3.9
Ahli Bank 17,734 2.6
Others 28,229 4.1
Total Conventional Banks 498,881 71.9
Foreign Banks (Aggregate) Total Foreign Banks 34,194 4.9
Total Banking Sector* Total Assets 694,301 100.0
Competitive Environment
21
(Source: KPMG FY 2011 Banking Sector Results Snapshot; Qatar Central Bank Dec 2011 Quarterly Statistical Bulletin)
*Excludes Qatar Development Bank
Major Events
Continued Strong Growth
Pay-rise for Qataris (Q3/Q4 2011)• 60% Increase for
Qataris• 120% for military
officers
Accelerating infrastructure development• World Cup 2022• Qatar National Vision
2030
Olympics 2020Strong Bid, September
2013 Decision
22
Regulatory Environment
Regulator Details Relationship
Qatar Central Bank
Supervises and controls the activities of QIIB and also manages and operates QIIB’s clearing and settlement processes
The QCB requires QIIB to maintain a minimum reserve requirement of 4.75% and a capital adequacy requirement of 10.0% in line with the Basel II guidelines
QIIB is required to have their annual accounts audited by QCB’s approved independent auditors and to obtain prior approval from the QCB to appoint senior management
QCB imposes certain exposures on QIIB, i.e. no more than 20.0% of any bank’s capital and reserves may be extended to a single customer in the form of credit or investment facilities and no more than 25.0% of any bank’s capital reserve may be extended to a single customer in the form of credit facilities combined with investment vehicles
Establishment of credit bureau
Follows regulations
Professional working relationship
Proactive reporting
Qatar Financial Markets Authority
Shareholders registry and corporate governance rules
Follows regulations
Professional working relationship
Qatar Exchange
Market updates, quarterly / annual financial reporting
Ministry of Finance
Taxation requirements – non-local vendor services/supplies (5% tax); social support (2.5%)
Ministry of Business & Trade
Company registration, municipality requirements
23
Regulatory Developments
• On-going development• Pending guidance and clarity from QCB• IFSB development for Islamic financial
institutions?
Basel III
• US tax legislation• Affects banking operations, business• Operational review – decision to comply?
Foreign Account Tax Compliance Act (“FATCA”)
• Change in credit ratio limit from 90% to 100%
• Increase in Risk Reserve ratio to 1.75% by end-2012, and 2.0% by end-2013
Regulatory Ratio Changes
24
Accounting Standards & External Audit
Auditor
AAOIFI
IFRS
Unqualified
Central Bank
5 year rotation basis (QCB mandate): Deloitte & Touche final year 2012 audit (previously Ernst & Young)
Accounting & Auditing Organisation for Islamic Financial Institutions (“AAOIFI”) review of its accounting standards and application thereof
New accounting standard FAS 25
Deferment of IFRS 9 Convergence with Basel III requirements – loss provisioning, disclosures
QIIB has never received a qualified audit opinion
The central bank also performs an audit on QIIB No major audit / inspection issues
25
Internal & Shari’a Audits
Internal Audit rates each areas/activities of the Bank based on a scorecard Comprises a series of financial and non-financial factors Factors are scored according to Internal Audit’s assessment Final summary score determines rating as Low, Medium or High Risk
IA Risk Scaling
QIIB’s independent internal audit function conducts a rolling programme of audits based on internal risk assessments of the Bank’s operations and activities
Internal Audit
The criteria for rating audit points / grading audit reports is based on a Board-approved policy rating scorecardCriteria
Audit reports are graded in the same manner as the risk scaling Audit work results in update to the scoring of the factors (or inclusion of new
factors) Final summary score (post-audit) then determines whether findings are Low,
Medium or High Risk
Audit Report
Grading
Shari’a Audit
Products / services vetted by Shari’a Supervisory Committee prior to release to market
Regular Shari’a audits to ensure compliance with vetting decrees Compliance certificate issued annually (with annual report publication)
26
C. Retail Banking
Primary Activities
Business Model
Management
Distribution
Retail Banking: Overview
Individual customers’ deposits, financing facilities (automobile, shares, personal loans, etc) and credit cards
Assistant General Manager reporting to the Deputy CEO
Segment-targeted best value products backed by sales and service excellence Fully-fledged range of Islamic retail banking products Providing and enhancing customer service excellence, including “one-stop shop” banking Constantly expanding physical and consumer presence through branch and ATM network and
social engagements Close monitoring of credit and related risks Segmented targeting of customers and developing market intelligence
15 Branches across Qatar to increase by 3 annually starting in 2011 67 ATM’s to increase by 6 annually starting in 2011 E-Banking channels including 24/7 call centre, internet and mobile banking for bill payments,
exchange rates, remittances, etc 145 staff?
28
QR 3.6 Bn Retail
Commercial (SME)
Corporate
Investment & Treasury
14.8%
QR 3.4 Bn
Musawama
Ijarah
Estesna
Musharka
Invest.Under Execution
93.0%
QR 239.0 mio
Retail
Commercial (SME)
Corporate
Investment & Treasury
21.1%
Retail Banking: Contribution
Gross Segment Assets (Dec 2011) – Segment Contribution Gross Revenue (YTD Dec 2011) – Segment Contribution
Gross Retail Assets (Dec 2011) – Financing Type Gross Retail Assets (Dec 2011) – Islamic Product Type
29
Total Retail Assets QR 3.6 Bn (as at 31/12/11)
Total Segment Assets QR 24.4 Bn (as at 31/12/11) Total Revenue QR 1,133.9 mio (YTD 31/12/11)
Total Retail Assets QR 3.6 Bn (as at 31/12/11)
QR 1.6 BnQR 1.5 Bn
Vehicle Financing
Furniture Financing
Real Estate (Purchase)
Real Estate (Construction)
Other Consumer Financing
41.5 %44.8 %
Retail Banking: Products
Products & Services
Current, savings and term deposits (unrestricted investment accounts)
Consumer financing (refer to below table) Automobile household goods residential property shares tawaroq
Electronic cards (debit, credit)
e-Banking channels Internet Mobile Phone call centre
Safe deposit lockers
Private Banking (under development)
30
Average facility size c. QR 200k per
customer
Average deposit size c. QR 200k per
customer
Average products per customer (cross-sell
ratio): 2.7
Retail Banking: Customers
Current Accounts Savings Accounts Fixed TermDeposit Customer
Base / Total Deposits
Number of Clients 40,296 58,468 6,937 87,377
Amounts (QR ‘000) 3,968,016 4,447,529 9,514,072 17,929,617
31
Vehicle Financing
Furniture Financing
Real Estate Purchasing
Real Estate Construction
Other Consumer
Finance
FinancingCustomer Base/Total Facilities
Number of Clients 20,352 42 229 2,282 11,305 17,597
Facilities (QR ‘000) 1,512,560 3,116 104,235 391,035 1,634,748 3,645,694
QR 3.3 Bn
QR 3.3 Bn
Current Savings Term
23.5%
23.2%
QR 14.1 Bn
Retail Commercial (SME)
Corporate Investment & Treasury
78.4%
Retail Banking: Funding Success
Total Deposit Liabilities (Dec 2011) – Contribution Retail Liabilities (Dec 2011) – Distribution
Retail deposits consistently >60% of Bank’s customer deposits
Mitigates funding concentration
Customer (depositor) loyalty
Current accounts > 20% of retail deposit book
Savings (low cost) accounts >20% of retail deposit book
Total low cost accounts circa 40% of retail deposits
Improves profitability (0% and low cost, enhanced profit sharing to shareholders)
32
Total Deposit Liabilities QR 17.9 Bn (as at 31/1211)
Retail Banking: Growth Objectives
Increasing assets 20% annually
Increasing deposits 15 - 18% annually
Develop and implement customer service excellence
framework
Enhance e-Banking channels and
implement “one-stop shop” banking
Increase distribution network by
increasing branches and ATMs
Establish a marketing team to undertake market
research
33
Call centre revamp/over
-haul
Increased to 67 ATMS
(from 60 in 2010)
Hired Business
Development Manager
2011 targets achieved
“One-stop shop” training rolled out to all branches
Established Quality
Control Unit
Product / Market
RevenueFocus
Customer and Brand
Product Innovation: by undertaking market research and fulfilling customer needs with unique and customer focused products, e.g. installment credit cards, investment products etc.
New Segments / Sectors: identify and exploit new market segments such as Non-Arab expatriates, youth, education, etc
Expand Distribution: by adding 3 branches and 6 ATM’s per year E-Banking: by introduction of outbound calling and developing mobile banking applications
Customer Service Excellence: through increased focus on customer needs and match expectations with product and service offerings
Enhance Brand Equity: through consistent branding via marketing and advertising campaigns, with further reinforcement via strong community-based PR and engagement initiatives
Distribution
Increased Customers and Sales: through new / enhanced products, closing of conventional banks Islamic windows, outbound calling, expat segment
Increase Cross Selling: optimize customer profitability through service excellence and segment-targeted bundling, packing of products rather than monoline, singular product offering
Competitive Profit Rate Pricing: ensure depositor profit rates are competitive and not running above market average
Retail Banking: Growth Strategy
34
Retail Banking: Growth Journey
Intended Destination
2010
2011
2012
2013
· Product development· Increasing services (e-
Channels)· Expanding physical and
community presence· Developing market intelligence· Developing service excellence
· Extended/Full product suite· Extended/Full functioning e-
Channels· 17 Branches, 66 ATMs +
continuing increase· Segment targeting, social
programmes, market branding· Established service excellence,
increased customer retention
· Full/Mature product suite· Full/Mature functioning e-
Channels· Expanded presence, seeking
geographical diversification· Established segments,
recognised social contributor· Sustainable, increasing
customer base and profitable growth
Product development Increasing services (e-Channels) Expanding physical and community
presence Developing market intelligence Developing service excellence
Extended / full product suite Extended / Full functioning e-Channels 17 Branches, 66 ATMs + with further
growth Segment targeting, social
programmes, market branding Established service excellence,
increased customer retention
Extended / full product suite Extended e-Channels Expanded presence, seeking
geographical diversification Established segments, recognised
social contributor Sustainable, increasing customer
base and profitable growth
35
D. Corporate Banking
Primary Activities
Business Model
Management
Distribution
Corporate Banking: Overview
Lending to government entities, large corporate’s via ijarah, murabaha, musawama, mudarabah, istisna and foreign trade finance products
First Assistant General Manager reporting directly in to the Deputy CEO
Close relationship management & critical risk monitoring under a customer service excellence framework Develop close / strong commercial relationships with private and government sectors Utilise relationship network and market intelligence to promote financing Close monitoring of credit and risks Done through service excellence with increasing product/service capabilities (eg e-Banking)
Client Coverage: via relationship managers and through branch network Staff: 12 Chairman, CEO, Deputy CEO and upper management all use closing relationships with
government , large family companies and HNWI
37
QR 6.1 Bn
Retail
Commercial (SME)
Corporate
Investment & Treasury25.0%
QR 5.1 Bn
Industry
Trade
Contracting
Housing
Other
83.6%
QR 1.9 Bn
QR 3.3 Bn
Murabha
Musawama
Ijarah
Estesna
MudarAba53.8%
31.3%
QR 516.9 mio
Retail
Commercial (SME)
Corporate
Investment & Treasury45.6%
Corporate Banking: Contribution
Gross Segment Assets (Dec 2011) – Contribution Gross Revenue (YTD Dec 2011) – Contribution
Corporate Gross Assets (Dec 2011) – Financing Segment Corporate Gross Assets (Dec 2011) – Islamic Product Type
38
Total Corporate Assets: QR 6.1 Bn as at 31/12/11
Total Segment Assets QR 24.4 Bn (as at 31/12/11) Total Revenue QR 1,133.9 mio (YTD 31/12/11)
Total Corporate Assets: QR 6.1 Bn as at 31/12/11
Corporate Banking: Distribution
Products & Services
Murabaha (cost-plus) Musawarma (negotiated cost-plus) Mudarabah (project financing) Istisna
Foreign trade finance (LCs, LGs, Documentary Credits etc)
e-Banking channels (electronic transaction capabilities)
Sector Real-Estate Commercial Industrial Services Contracting Others Total
Corporations 11 41 13 22 29 16 132
HNWI 107 0 0 0 0 0 107
Total Clients 118 41 13 22 29 16 239
Direct Facilities (QR '000) 5,101,502 311,910 59,431 119,346 517,513 4,876 6,114,578
Customer Base
39
Corporate Banking: Growth Objectives
Increasing assets 20% annually
Increasing deposits 20% annually
Achieve not less than QR 20 million fee & commission income
for year 2011
Provisions and late payments to be not more than 1% of the overall credit balance
Develop customer service excellence
framework
Develop small medium enterpise (SME) segment
Establish market intelligence capability to
identify corporate business opportunities
40
Infrastructure projects release
slower than expected in 2011
Growth of 32.5% in SME
financing in 2011
Hired Business
Development Manager
“One-stop shop” training rolled out to all branches
Achieved QR 36.3 million
for 2011
2011 targets achieved
Data Processing: Improve data processing and operations, where appropriateOperational efficiencies
Key Contracts: Continue to seek out and win Qatari Govt. & Semi Govt. financial transactions with emphasis on projects related to Oil & Gas, Utility, Telecom, Aviation, Health, Education and Railway
Monitoring: Monitor market and competitors to create new opportunities
Target Government
Contracts
Major Contracts: Increase focus on the financing of major contracts awarded to the private corporate clients / family businesses (local or international) by the Qatari Government
Bespoke Services: Provide bespoke service to these entities to tailor service requirement to match expectations
Focus on Private
Corporates
Approvals: Enhance credit approval / administration process Methodology Management: Improve and implement additional risk management methodologies
of cashflow, customer valuations, feasibility studies of projects, profitability and adequate colleteral
Enhance Credit
Monitoring
Corporate Banking: Growth Strategy
E-banking: Increase efforts towards marketing of the electronic banking products & servicesE-Banking
Targeting SME Segment: Increase efforts towards marketing of the electronic banking products & services. Strong government support to develop SME sector within Qatar.
Focus on SME
41
Corporate Banking: Growth Journey
Intended Destination
2010
2011
2012
2013
· Product development· Increasing services (e-
Channels)· Expanding physical and
community presence· Developing market intelligence· Developing service excellence
· Extended/Full product suite· Extended/Full functioning e-
Channels· 17 Branches, 66 ATMs +
continuing increase· Segment targeting, social
programmes, market branding· Established service excellence,
increased customer retention
· Full/Mature product suite· Full/Mature functioning e-
Channels· Expanded presence, seeking
geographical diversification· Established segments,
recognised social contributor· Sustainable, increasing
customer base and profitable growth
Increase relationship management capacity
Close monitoring and management of credit quality
Improve customer service excellence framework
Develop market intelligence for financing new opportunities
SME focus
Market intelligence MIS with targeted marketing plans
Increased channels through full e-Banking
Client contact management system, increased staffing
Reducing / stagnant non-performing financing facilities (NPFF) development
Established intelligence team with internal research reports
Full-fledged e-Banking services and products
Client grading with regular contact, established CRM system
NPFF development remains controlled at < 1% of portfolio
42
E. Investment, market sales and capital markets
Investments: Portfolio Breakdown
Sukuk Investment Majority of sukuk investments are long term government
investments with good returns (QR 2.75 Bn Qatari government sukuk)
Trading Portfolio Opportunistic buying / selling
44
Financial Investments(By Type )
FMV at 31 DEC 2011 QAR'000
Qatar Exchange Equities 24,621
Sukuk Investments 3,589,297
Equity Participation 17,477
Investment Funds 16,961
Private equity 109,349
Sukuk Trading 505,455
Provision (4,100)
TOTAL 4,259,060
QR 3.6 Bn
Qatar ExchangeEquities
Sukuk Investments
Equity Participation
Investment Funds
Private equity84.3%
Staffing: Recruit experienced and skilled people / Provide training to staff to ensure they understand systems and processes / Develop appropriate remuneration and incentive programs to motivate staff / Retain staff through high morale and good rewards / Provide an attractive working environment for staff
Systems: Develop hardware, systems and data packages appropriate to the business / Develop a robust and secure platform for the management of information
Stakeholders: Provide transparency and strong governance standards to gain the confidence of all stakeholders, including contributors and regulators / Manage the risk of the portfolio to ensure a robust financial performance over the long term
Strategy
Investments: Strategy & Policies
Valuation Policy
Listed Equities / Sukuks: for regularly traded listed securities fair value is generally the latest market value being the last traded price or the bid/offer where no trades occurred on the particular valuation day
Unlisted Securities: the fair value is the probable realisation value. This is generally established on unlisted securities by reference to, but not limited to; cost price; current earnings review and forecasts; recent capital transactions or events and the price of any recent market transaction
45
F. Funding / Liquidity & Treasury
Funding: Strategy
• Deposits (Customer – 75%) • Capital (Majority Shareholder(s), Government)Core
• Sukuk• Syndicated Murabaha• Wakala Agreements (interbank)
Wholesale
Long Term Funding Requirements: At present the Bank has sufficient capital but if additional funding is needed it may choose core or wholesale funding options when the time is needed
Existing or Planned New Funding: With an assessment of market conditions the Bank may issue an Islamic debt instrument later in the year
47
Funding: Profit Sharing Investment Accounts
Reliance on PSIA
•The majority of customer deposits (>75%) are PSIA
Restricted / Unrestricted
•Unrestricted and restricted available•Only unrestricted presented on-balance sheet
Remunerated methodology
•Profit sharing methodology determined by Shari’a requirements and QCB•Based on PSIA’s proportion against total liabilities and shareholders’ equity•Taking into account Mudarib’s (Bank’s) fee before profit allocation
Contractual clauses
•Investment contract in original documentation which states must legally share profit and losses equally
Accounting Treatment
•In accordance with AAOIFI and QCB requirements with profit allocation every 3 months and fixed amount after final year-end audit.
48
Funding: Deposits
Top 20 Depositors
Nos NAME BALANCE (QR)
1 1200&187185 MIN. OF FOREIGN 486,218,485
2 108595&39139&6565
Ezdan 542,739,094
3 33617 MAHMOD HAIDOS 245,030,128
4 312443 SHK.SAOUD A.H. 207,605,428
5 6001 ISLAMIC FINANCE 191,617,085
6 590009 PUPLIC PROSECU 148,452,846
7 100209 MINORS AFFAIRS 142,479,559
8 244855 R.STATE.INVST.C 96,670,745
9 532941 SHK-ABDULRHMAN 93,596,341
10 34963 SOULIEMAN 87,072,019
11 24027 A.AZIZ ABDULLA 85,758,447
12 183783 SH.KHALID THANI 85,756,296
13 49499 ISSA ALKUWARI 84,020,140
14 44155 AISHA ALSOWAIDI 81,104,079
15 31841 AL-MAHMOUD 79,692,048
16 23027 QATAR INVSTMENT 77,107,797
17 21129 MOHD R MAADEED 76,598,154
18 411711 SULTAN FAKHROO 75,160,502
19 2200 MUBARAK ALMALKI 71,483,475
20 430033 ALTARIQ CO. 71,122,408
3,029,285,077
Deposit Base Overview
Primarily Qatar based Divided between:
High net Wealth Individuals Government departments Qatar Sovereign Wealth Fund Qatar Corporate Entities
Top 20 are long term deposit holders in bank / minimal switching / loyal
Top 20 represents <20% of total deposits Deposit base is well diversified Long term holding
Interbank deposits
As at 31 Dec 2011 it represents QR 1,345 m from banks with top 3 being – CBQ-Al Safa USD 125m, Qatar Central Bank QR 316m and Arab Monetary Fund QR 115m
Single Name Concentrations Minimal concentrations
49
Funding: FOREX
Prudent FOREX
Management
No Open Positions
c. 10% Assets / c. 6% Liabilities
with FOREX exposure
Current position is to cover daily
exposures
Regulatory requirement min
100% of FCY Assets vs Liabs.
50
Funding: Contingent Liquidity
Internal Minimum Liquidity Buffers: Follow QCB requirements of 100% which is monitored on a daily basis. Review / Monitoring: Internally it is monitored by Treasury (a) Daily – reports to CEO (b) Weekly – management
meetings/reports (c) Monthly – ALCO (d) Stress testing – quarterly
Qatar Central Bank
1: QR 1,000m Term Facility
2: QR 500m Repo
Government
1: QR 1,500m Sukuk
QR 3 Billion in Contingent
Funding Sources
(c. 30% of Total Financing Assets
51
Funding: Liquidity Management
Strong Liquidity
Framework
ALCO / Treasury Shared responsibility
Management
on a daily, weekly and monthly basis
Qatar Central Bank
In line with QCB regulations
Contingent Liquidity
Strong lines with QCB and Government
52
Risk Monitoring
Nostro Accounts (Bank Balances) Money Market Maturity List Current FX trading profit and loss FX currency position report Overnight FX position revaluation Summary of FC dealing and foreign currency assets Bank limits and utilisation (manual)
TreasuryOperations
Management local currency liquidity / liquidity management Controlling Nostro / Vostro accounts Issuing exchange rates to departments within bank Tracking FX exposure Covering all domestic issues, including sukuks, equities, retail product funding Propriety trading, covering vanilla-based products of FX, cover FX products only
for current bank customers Close open position Opportunities for risk identified through diligent market views with appropriate
parameters for profit and loss and risk management applied Risk limit adherence overseen by risk management
Treasury: Activities
Treasury is the funding arm of QIIB and does not actively trade any positions in the market
53
Alco Pack: Summary for Dec 2010
QIIB actual performance in comparison with budget 2011 Features of QIIB Performance 2009 – 2010 Bank figures 2000-2010 Bank performance analysis 2009 – 2010 Balance sheet as 31/12/2010 Statement of income Dec 2010 Income from Investing activities Banking services Daily financial position as at 31 Dec 2010 Statement of income (including Branch performance) Investment in associates Return of investments Return on investment properties Average cost of funds Efficiency ratio’s Non performing facilities Average rates on metal and commodities and deposit with Islamic banks during 2010 Provisions
The follow reports are reviewed in the monthly ALCO meeting:
54
G. Risk Management and Credit
Credit Risk
Market Risk
Operational Risk
Legal Risk
Liquidity Risk
Regulatory, legal and reputational risks through compliance and risk frameworks with counsel from legal advisers
Risk Management
Risk Committee
Shari’a Committee
ALCO Committee
Late Payment and Provision Committee
Equity Investment Committee
Investment Limits Committee
Finance Committee
Internal AuditCommittee
Risk Management: Overview
Diversification of investments, capital markets and lending and financing activities – avoid concentration Collaterals (cash, real estate and equity) used when appropriate Exposure skewed towards high credit quality entities (rated A- or better in 2009) Credit policy driven by Group Credit Committee which reviews credit applications/limits and approval authority Appropriate monitoring of credit risk – robust provisioning policy and recovery processes
Regular scenario and stress analysis to manage and monitor market risk Robust risk management system
Diversification of funding base Broad portfolio of high quality liquid assets and readily marketable securities Constant monitoring of liquidity position
Comprehensive operational risk management policy augmented by sophisticated risk management software (in progress)
Key risk indicators monitored and risk/loss database maintained Strong IT infrastructure and detailed contingency plans/procedures with two Disaster Recovery sites supporting main
data center
56
Risk Management: Committees / Executive
Committees1. Executive2. Past Due and Reserve3. Compliance and Governance 4. Selection and Compensation 5. Policy and Development 6. Risk7. Sharia Supervisory 8. ALCO 9. Investments 10. Provisions 11. Finance
Executive1. Board of Directors2. Sharia Board2. CEO3. Exec Committee4. Chief Risk Officer5. Experienced Line Managers
Effective Risk
Mitigation
57
Credit: Products
Personal Finance
Vehicle Finance
Housing Finance
Credit Cards
Retail Customers Overdraft Facilities
Commercial Finance
Trade Finance
Contractor Finance
Project Finance
Syndications
Treasury Products
Working Capital
Corporate Customers
58
QIIB Overview
Credit: Approval Process
Overview and general information on the credit (i.e. name, address, etc)
Financial Analysis
Internal Risk Rating
Previous exposures
Industry sector
Purpose of finance
Sources of repayment
Collaterals
Proposed recommendation
Terms and conditions
Key risks have been mitigated against
Exceptions and / or signs of weakness in the credit and are properly mentioned
Requirements / information necessary for the preparation of credit proposal are applied consistently
Detection of weak credit and identify problems as quickly as possible
Complies with QIIB and QCB policies and best practices
Credit Committee Up to QR 17mChairman, MD and CEO More than QR 17m to QR 25m Executive committee More than QR 25m to QR 150m
Board of Directors More Than QR 150m
Step 1: Relationship manager receives a credit proposal memorandums (CPM ) that includes the following:
Step 2: Risk management reviews the CPM ensuring that the following areas have been assessed:
Step 3: The CPM is then passed onto the credit committee for approval:
59
Credit: Internal Risk Rating System
QIIBRating
Definition QCB Rating
1 High credit quality – risk-free
Low risk2 High credit quality approximating risk-free
3 Very low credit risk
4 Low credit risk
5 Acceptable credit riskSpecially-mentioned
6 Credit risk approximating acceptable
7 Requires credit risk monitoring
8 Not acceptable credit risk Sub-Std
9 High risk, non-performing Doubtful
10 High risk, doubtful collection Bad
60
Credit: Internal Risk Rating Profile
61
QIIB Rating
Definition 31/12/2010 31/12/2011
1 High credit quality – risk-free 20.28% 17.34% 2 High credit quality approximating risk-free 5.17% 4.72% 3 Very low credit risk 10.80% 11.79%
4 Low credit risk 26.16% 26.95% 5 Acceptable credit risk 29.33% 31.57% 6 Credit risk approximating acceptable 5.72% 5.24%
7 Requires credit risk monitoring 1.46% 1.40%
8 Not acceptable credit risk 0.58% 0.52%
9 High risk, non-performing 0.40% 0.36%
10 High risk, doubtful collection 0.10% 0.11%
Credit: Top 20 (Single Obligor) Exposures
62
Total
Sr.#Customer
Basic No.#Cutomer Type Product Type
Granted
Outstanding amounts
Mortgage Cheque Insurance Others CollateralsInternal Rating
1 44415 Real Estate Co. Corporate - Real Estate 1,760,411 1,760,411 1,760,411 1,760,411 0 0 1,600,000 3,360,411 Excellent2 87 Contracting Co. Corporate - Real Estate Investment 1,200,000 1,200,000 1,200,000 0 0 0 1,200,000 1,200,000 Standard3 484999 Real Estate Co. Corporate - Real Estate 601,069 601,069 601,069 0 585,000 0 0 585,000 Standard4 298408 Government Government - Other 631,492 631,492 631,492 0 0 0 0 0 Excellent5 29979 Financing Co. Corporate - Real Estate Investment 400,000 400,000 400,000 0 0 0 400,000 400,000 Standard6 244855 Real Estate Co. Corporate - Real Estate 357,708 357,708 357,708 0 0 0 0 0 Standard7 476647 Real Estate Co. Corporate - Real Estate 378,495 378,495 378,495 322,079 450,140 0 2,700,560 3,472,779 Standard8 105510 Individual Individual - Real Estate 337,346 337,346 337,346 617,336 0 0 0 617,336 Excellent9 290229 Individual Individual - Real Estate 220,687 214,377 220,687 447,414 435,715 0 11,867 894,996 Excellent10 22015 Financing Co. Corporate - Trading 318,863 318,863 318,863 133,217 227,159 0 300,000 660,376 Standard11 102899 Individual Individual - Real estate & Trade 225,280 184,036 225,280 352,239 354,205 190,440 0 896,884 Standard12 110050 Individual Individual - Real Estate 151,470 151,470 151,470 253,804 0 0 0 253,804 Excellent13 170800 Society Organization Corporate - Real Estate 135,000 135,000 135,000 Standard14 56912 Oil & Gas Corporate - Real Estate Investment 81,454 81,454 81,454 Standard15 236070 Vehicle & Parts Corporate - Trade & Service 95,234 95,234 95,234 137,500 111,600 0 763,000 1,012,100 Standard16 172994 Individual Individual - Real Estate 80,013 80,013 80,013 Standard17 33367 Individual Individual - Real Estate 96,280 96,280 96,280 109,977 110,000 215,762 0 435,739 Standard18 9111 Individual Individual - Real Estate 85,845 85,845 85,845 Standard19 2434 Trading Corporate - Other 77,097 77,097 77,097 Standard20 103127 Publishing & Printing Corporate - Other 69,375 69,375 69,375 Standard
* No indirect facilities for listed customers 7,255,565
Pending updated information
Pending updated informationPending updated informationPending updated information
Top 20 Single Credit Exposures 2011Direct Facilities('000)
Total * Type Of Collateral
Pending updated informationPending updated information
Credit: Top 20 Group Exposures
63
Total
Sr.#Customer Basic
No.#Cutomer Type Granted
Outstanding amounts
GrantedCommitted Exposures
Cash Mortgage Cheque Insurance Others CollateralsInternal Rating
1 Real Estate Co. 1,777,080 1,777,080 240,475 240,475 2,017,555 0 2,856,295 2,492,032 0 1,600,000 6,948,327006565/044415/039139 Corporate - Real Estate 1,776,443 1,776,443 147,290 147,290 1,923,733 0 2,852,561 2,492,032 0 1,600,000 6,944,593 Excellent108595/036669/030411 Corporate - Car 637 637 93,185 93,185 93,822 0 3,734 3,734 Excellent
2 Contracting Co. 1,200,000 1,200,000 0 0 1,200,000 0 0 0 0 1,200,000 1,200,00087 Corporate - Real Estate Investment 1,200,000 1,200,000 0 0 1,200,000 0 0 0 0 1,200,000 1,200,000 Standard
3 Real Estate Co. 958,777 958,777 0 0 958,777 0 0 585,000 0 0 585,000484999 Corporate - Real Estate 601,069 601,069 0 0 601,069 0 0 585,000 0 0 585,000 Standard244855 Corporate - Real Estate 357,708 357,708 0 0 357,708 0 0 0 0 0 0 Standard
4 Government 631,492 631,492 0 0 631,492 0 0 0 0 0 0298408 Government - Other 631,492 631,492 0 0 631,492 0 0 0 0 0 0 Excellent
5 Individual 499,689 499,689 0 0 499,689 0 254,144 617,336 0 389,616 1,261,096105510/110050/35535 Individual - Real Estate 499,509 499,509 0 0 499,509 0 253,804 617,336 0 389,616 1,260,756 Excellent
44005 Corporate - Car 180 180 0 0 180 0 340 0 0 0 340 Excellent6 Individual 409,345 409,345 0 0 409,345 0 347,026 481,407 0 2,700,560 3,528,993
164800 Individual - Other 2 2 0 0 2 0 88 108 0 0 196 Standard476647 Corporate - Real Estate 378,495 378,495 0 0 378,495 0 322,079 450,140 0 2,700,560 3,472,779 Standard484005 Corporate - Other 30,848 30,848 0 0 30,848 0 24,859 31,159 0 0 56,018 Standard
7 Financing Co. 400,000 400,000 0 0 400,000 0 0 0 0 400,000 400,00029979 Corporate - Real Estate Investment 400,000 400,000 0 0 400,000 0 0 0 0 400,000 400,000 Standard
8 Individual 401,263 357,084 3,420 3,420 404,683 0 623,466 680,394 190,440 907,585 2,401,885102899 Individual - Real estate & Trade 225,280 184,036 0 0 225,280 0 352,239 354,205 190,440 0 896,884 Standard123969 Corporate - Trade & Service 6,000 3,328 0 0 6,000 0 0 12,000 0 12,000 24,000 Standard280037 Corporate - Car 1,366 1,103 0 0 1,366 0 1,366 1,680 0 3,360 6,406 Standard236070 Corporate - Trade & Service 95,234 95,234 0 0 95,234 0 137,500 111,600 0 763,000 1,012,100 Standard21335 Individual - Other 8,929 8,929 0 0 8,929 0 3,368 19,536 0 15,239 38,143 Standard35433 Corporate - L/G 0 0 3,420 3,420 3,420 0 0 3,420 0 13,680 17,100 Standard4008 Individual - Real Estate 63,988 63,988 0 0 63,988 0 128,993 177,260 0 99,591 405,844 Standard
485963 Individual - Other 466 466 0 0 466 0 0 693 0 715 1,408 Standard9 Financing Co. 318,863 318,863 0 0 318,863 0 133,217 227,159 0 300,000 660,376
22015 Corporate - Trading 318,863 318,863 0 0 318,863 0 133,217 227,159 0 300,000 660,376 Standard10 229,657 223,347 0 0 229,657 0 458,249 436,945 0 13,097 908,291
290229 Individual - Real Estate 220,687 214,377 0 0 220,687 0 447,414 435,715 0 11,867 894,996 Excellent44047 Individual - Real Estate 8,970 8,970 0 0 8,970 0 10,835 1,230 0 1,230 13,295 Standard
Top 20 Group Credit Exposures 2011
Direct Facilities('000) Indirect Facilities('000) Total
Type Of Collateral
Credit: Top 20 Group Exposures (contd.)
64
Total
Sr.#Customer Basic
No.#Cutomer Type Granted
Outstanding amounts
GrantedCommitted Exposures
Cash Mortgage Cheque Insurance Others CollateralsInternal Rating
11 Individual 394,000 220,860 335,775 308,017 729,775 25,746 73,462 6,000 0 3,294,244 3,399,45210565 Corporate - Industry 137,751 212,587 719,000 16,582 73,462 0 0 2,748,244 2,838,288 Standard
362223 Corporate - Contractor 83,109 86,679 0 0 0 0 0 540,000 540,000 Standard3978 Corporate - L/G 0 0 7,775 7,775 7,775 9,164 0 0 0 0 9,164 Standard
375720 Corporate - L/G 0 0 3,000 976 3,000 0 0 6,000 0 6,000 12,000 Standard12 Engineering Co. 346,924 99,564 196,246 196,246 543,170 546 109,977 200,591 215,762 4,837,768 5,364,644
381216 Corporate - Tade & Contractor 165,249 2,944 195,555 195,555 360,804 0 0 0 0 4,551,268 4,551,268 Standard33367 Individual - Real Estate 96,280 96,280 0 0 96,280 0 109,977 110,000 215,762 0 435,739 Standard
130140 Individual - L/G 0 0 546 546 546 546 0 0 0 0 546 Standard26955 Corporate - Trade & Contractor 85,055 0 145 145 85,200 0 0 90,000 0 286,500 376,500 Standard9653 Individual - Other 340 340 0 0 340 0 0 591 0 0 591 Standard
13 Individual 94,704 55,260 1,531 1,531 96,235 0 112,399 119,361 0 88,648 320,408296464 / 24443 Individual - Real Estate 3,405 3,405 0 0 3,405 0 10,037 10,751 0 0 20,788 Excellent
228892 Individual - Car 175 175 0 0 175 0 0 299 0 14 313 Standard395519 Corporate - L/G 0 0 101 101 101 0 0 0 0 0 0 Standard24893 Corporate - Car 664 664 1,380 1,380 2,044 0 2,000 3,005 0 8,027 13,032 Standard30319 Corporate - L/G 0 0 50 50 50 0 0 40 0 50 90 Standard
522331 Corporate - Contractor 162 162 0 0 162 0 0 372 0 372 744 Standard228388 Individual - Real Estate 14,173 14,173 0 0 14,173 0 20,300 24,783 0 0 45,083 Standard396957 Individual - Other 86 86 0 0 86 0 0 0 0 0 0 Standard260974 Individual - Car 50 50 0 0 50 0 0 111 0 45 156 Standard44899 Corporate - Car 41 41 0 0 41 0 62 0 0 140 202 Standard4234 Individual - Real Estate 75,948 36,504 0 0 75,948 0 80,000 80,000 0 80,000 240,000 Standard
14 Individual 34,102 34,102 190 190 34,292 0 81,826 146,148 0 13,408 241,382005005/260230 Individual - Real Estate 32,238 32,238 100 100 32,338 0 76,536 140,522 0 0 217,058 Excellent289131/421259 Corporate - Car & Other 1,754 1,754 90 90 1,844 0 5,099 5,399 0 12,954 23,452 Excellent
421259 Corporate - Car 110 110 0 0 110 0 191 227 0 454 872 Excellent15 Individual 21,482 19,909 500 500 21,982 0 33,117 44,398 0 15,000 92,515
183783 Individual - Real Estate & Car 18,290 18,290 500 500 18,790 0 30,117 41,094 0 0 71,211 Excellent291950 Corporate - Real Estate & Contractor 3,000 1,427 0 0 3,000 0 3,000 3,000 0 15,000 21,000 Standard364001 Individual - Car 192 192 0 0 192 0 0 304 0 0 304 Standard
16 Individual 11,279 11,279 0 0 11,279 0 12,317 14,288 0 0 26,605264600 Individual - Other 498 498 0 0 498 0 0 0 0 0 0 Excellent300275 Individual - Car 1,591 1,591 0 0 1,591 0 417 2,488 0 0 2,905 Excellent38889 Individual - Car 249 249 0 0 249 0 0 0 0 0 0 Excellent
43 Individual - Real Estate 7,994 7,994 0 0 7,994 0 11,900 11,800 0 0 23,700 Excellent6029 Individual - Shares 947 947 0 0 947 0 0 0 0 0 0 Excellent
17 Individual 9,922 4,065 7,672 4,604 17,594 100 593 15,870 13,215 28,600 58,378418918 Individual - Other 10 10 0 0 10 0 0 0 0 0 0 Standard416222 Corporate - Trade & Industry 1,500 215 300 25 1,800 0 593 2,720 2,500 0 5,813 Standard89418 Corporate - Trade & Industry 5,628 2,157 3,372 3,101 9,000 0 0 6,300 7,500 25,200 39,000 Standard89000 Corporate - Trade & Industry 650 280 0 0 650 0 0 850 715 3,400 4,965 Standard
136580 Corporate - Trade 2,000 1,269 4,000 1,478 6,000 0 0 6,000 2,500 0 8,500 Standard28909 Corporate - Contractor 134 134 0 0 134 100 0 0 0 0 100 Excellent
18 Individual 3,684 3,684 0 0 3,684 862 1,234 4,879 0 4,021 10,996353999 Individual - Other 516 516 0 0 516 331 65 449 0 0 845 Standard154783 Individual - Real Estate 1,826 1,826 0 0 1,826 331 1,076 2,433 0 0 3,840 Standard23477 Corporate - Other 83 83 0 0 83 0 93 120 0 240 453 Standard2817 Corporate - Contractor 295 295 0 0 295 0 0 465 0 637 1,102 Standard11661 Corporate - Car 843 843 0 0 843 0 0 1,239 0 2,478 3,717 Standard
378444 Corporate - Contractor 121 121 0 0 121 200 0 173 666 1,039 Standard19 Individual 1,777 1,777 0 0 1,777 700 0 0 0 0 700
299277 Individual - Other 1,777 1,777 0 0 1,777 700 0 0 0 0 700 Excellent20 Individual 1,769 1,769 0 0 1,769 0 3,160 938 0 0 4,098
152160 Individual - Real Estate 1,769 1,769 0 0 1,769 0 3,160 938 0 0 4,098 Excellent
7,227,946
325,000394,000
Direct Facilities('000) Indirect Facilities('000) Total
Type Of Collateral
QIIB Overview
Credit: Provisioning Policy
Policy: Follow QCB regulations and IFRS
QCB provisioning regulations are stated as followings :
Banks should estimate appropriate provisions on the credit facilities according to the IFRS, provided that such
provisions are not be less than the following ratios calculated on the outstanding credit facilities after deducting the suspended interest (return) and value
of the collaterals as mentioned below:
Committed Credit Facility According to Bank’s Management
Substandard 20%
Doubtful: 50%
Bad:100%
65
Credit: Collateral Policies
• Retail: mortgage over residential properties and securities, recovery of assets
• Corporate: mortgage over real estate properties, inventory, cash, securities, corporate guarantees
• Securities: cash or securities• Islamic: transfer of title
Protection
• Real Estate: transfer of title deed• Listed Equities: sale of assets• Automobile: joint title with Ministry of Transport
Enforcement
66
Credit: NPFFs
Top 20 Non Performing Financing Facilities
Sr.# Customer Acc.# Overall Liability (QR) Category
1 484005 30,847,712 Substandard2 022015 18,870,394 Doubtful 3 286086 5,747,663 Doubtful 4 470047 3,330,683 Bad5 033381 2,968,329 Substandard6 024727 2,103,882 Bad7 366292 2,022,535 Substandard8 554557 1,830,194 Substandard9 084343 1,588,780 Substandard
10 432620 1,224,811 Substandard11 590043 1,199,392 Bad12 331227 1,186,771 Doubtful 13 001515 1,185,567 Substandard14 020747 976,516 Bad15 003726 965,051 Substandard16 044451 935,495 Substandard17 208190 918,892 Bad18 023063 817,355 Substandard19 457667 753,775 Substandard20 351015 711,074 Substandard
67
Credit: NPFFs
Time Series of Year End Nonperforming Assets Over the Past 5 Years
QR '000s FY07 FY08 FY09 FY10 FY11
Required Provision (%) NP-IFF Provision NP-IFF Provision NP-IFF Provision NP-IFF Provision NP-IFF Provision
Substandard (1-20%) 40,655 9,830 51,999 9,204 98,943 13,366 261,865 14,753 73,239 12,542
Doubtful (21-50%) 16,519 8,260 13,678 6,839 13,741 6,350 10,581 5,083 12,310 5,581
Bad (51-100%) 49,654 49,654 60,817 51,695 77,003 62,258 86,760 78,061 102,614 98,477
TOTAL 106,829 67,744 126,494 67,737 189,687 81,974 359,206 97,897 188,163 116,600
Note
Where necessary financing facilities are re-negotiated and if an agreement is reached, a new facility is provided, with the old extinguished
Any customer may choose to approach the Bank and re-negotiate an existing facility.
If an agreement can be reached, the existing facility is extinguished and a new facility provided on the newly agreed terms and conditions
Under these circumstances, the facility is “re-structured”
There are no specific conditions in regards to restructuring a finance facility– any customer can choose to do it
68
Credit: Off-Balance Sheet Items
QAR '000 2010 2011
Deferred or contingent Commitments
Acceptances 19,663 39,245
Letters of guarantees 681,054 913,115
Documentary credits 290,928 305,389
Collection notes 9,632 11,062
1,001,277 1,268,811
Other contracts and commitments
Commitments and unused credit limits 395,415 67,902
Restricted investment balances 12,659 -
408,074 67,902
TOTAL 1,409,351 1,336,713
69
Related Party Transaction
QCB regulations require full collateralisation of related party facilities Collaterals can be cash, bank guarantees (internationally rated, sound ), personal assets (investments, real
estate, securities etc except personal residence) Facilities limited to 7% of capital and reserves for a single director’s borrower group (35% for all directors)
70
Board of
directors
Others Board of directors
Others
QR’000 QR’000 QR’000 QR’000
Balance sheet itemsAssetsMurabaha & Musawama 33,989 28,721 194,431 74,930 Istesna 75,948 - - Ijarah 49,828 115,460 134,750
159,765 28,721 309,891 209,680
Liabilities Current account balances 5,583 29,883 49,268 82Unrestricted investment deposits 101,816 285,258 159,112 91,001
107,399 315,141 208,380 91,083
Off balance sheet items:Letter of credits, letter of guarantees and acceptances
600 6,637 4,987
Income statement items Fees and commission income 10,385 1,867 22,002
2011 2010
H. Financial Performance / Capital
Balance Sheet: Highlights
Commentary
Sustained asset growth of 18.5%, 29.1%, 20.9%, 17.1% from FY06 to FY10 respectively, notwithstanding the global financial crisis
As at 31 Dec 2011, total assets increased by 28.5% from Dec 2010
Strong balance sheet backed by quality credits; minimal provisioning
Sustained deposit growth through customer loyalty
Continued strong asset growth in 2011, bright outlook for 2012
Improving / strong economic growth
Islamic window opportunity
Infrastructure development (2022)
QAR ‘000 2006 2007 2008 2009 2010 2011
Financing Portfolio 3,556,943 4,190,847 7,487,200 9,070,011 9,177,747 10,588,963
Investing Portfolio* 4,371,994 4,965,692 3,553,742 5,255,072 2,339,936 5,500,206
Total Assets 8,397,934 9,951,209 12,842,464 15,520,911 18,178,941 23,357,626
Current Accounts 1,625,773 2,033,327 2,326,867 2,451,729 2,836,131 3,952,019
Unrestricted Investment A/Cs 5,070,434 5,184,551 6,812,280 9,101,563 11,197,751 14,138,758
Equity 1,425,193 2,356,384 2,780,290 3,799,349 3,817,298 4,893,260
Dividends Bonus Shares 50% 80% - - - -
Cash - - 40% 40% 37.5% 35%
Year on Year Growth
Financing Portfolio n/a 17.8% 78.7% 21.1% 1.2% 15.4%
Investing Portfolio n/a 13.6% -28.4% 47.9% (55.4)% 125.3%
Total Assets n/a 18.5% 29.1% 20.9% 17.1% 28.5%
Current Accounts n/a 25.1% 14.4% 5.4% 15.7% 39.4%
Unrestricted IA n/a 2.3% 31.4% 33.6% 23.0% 26.3%
Equity n/a 65.3% 18.0% 36.7% 0.5% 28.2%
72
* 2010 figures re-stated due to new classification in 2011
Un-restricted Investment Accounts
QR’0002009 2010 2011
(a) By type
Saving accounts 2,176,137 2,833,180 4,447,529
Time accounts 6,799,263 8,215,600 9,514,072
Current Account's 2,473,819 2,936,241 3,968,016
11,449,220 13,985,021 17,929,617
(b) By sector
Government and Government institutions 942,033 1,071,794 1,348,292
Individuals 6,547,070 8,801,493 12,911,296
Corporate 2,011,976 3,236,046 2,308,668
Financial institutions 1,948,141 875,688 1,361,361
11,449,220 13,985,021 17,929,617
Key Performance Indicators
Saving accounts (Year on Year) -13.1% 30.2% 60.0%
Time accounts (Year on Year) 59.7% 20.8% 15.8%
Current Accounts (Year on Year) 5.2% 18.7% 35.1%
Government (Year on Year) 36.0% 13.8% 25.8%
Individuals (Year on Year) 3.6% 34.4% 46.7%
Corporate (Year on Year) 14.9% 60.8% -28.7%
Financial institutions (Year on Year) 455.4% -55.1% 55.5%
73
Profit & Loss: Highlights
Commentary
Consistent profitability from FY07 to FY10; FY 2011 profitability achieving targets
Fallout of global financial crisis impacted Middle East later in 2009 – income from investment activities declines sharply in 2009; credit slowdown effect felt in following year with 2010 income from financing activities growing at a markedly slower rate
Impairment effects felt in 2010 provisioning, situation improved in 2011
Improved profit sharing differential for the Bank due to lower financing costs
Benefit of global slowdown is controlled expense growth
QAR ‘000 2006 2007 2008 2009 2010 2011
Income from Financing Activities 378,763 397,883 529,308 782,971 855,020 851,081
Income from Investing Activities 219,379 335,404 353,551 86,594 127,638 205,440Other Operating Revenues 81,831 72,685 49,892 88,375 102,723 77,400
General and Admin Expenses 85,026 94,090 129,267 149,175 153,513 181,945
Depreciation and amortisation 7,511 7,104 8,457 10,047 11,690 12,986Impairment of financial investments 11,047 26,752 86,954 0 41,045
1,821
Impairment of receivables and financing activities 10,555 0 0 16,500 16,064 19,343Impairment of investment properties 0 0 2,477 0 0 0
Other Income 11,555 0 0 0 25,228 0
Share of URIA in Net Profit 170,245 193,411 204,438 270,881 329,470 264,790
Net Profit Due to Shareholder's 399,024 479,995 501,158 511,337 558,827 653,036
Key Performance Indicators
Financing Activities (Year on Year) n/a 5.0% 33.0% 47.9% 9.2% -0.5%
Investing Activities (Year on Year) n/a 52.9% 5.4% -75.5% 47.4% 61.0%
Other Op Revenue (Year on Year) n/a -11.2% -31.4% 77.1% 16.2% -24.7%
G&A Expenses (Year on Year) n/a 10.7% 37.4% 15.4% 2.9% 18.5%
URIA Net Profit (Year on Year) n/a 13.6% 5.7% 32.5% 21.6% -19.6%
Net Profit (Year on Year) n/a 20.3% 4.4% 2.0% 9.3% 16.9%
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Earnings Quality: Highlights
Commentary
Strong core earnings – not reliant on asset sales
For 2007, 2008, non-core earnings increased significantly due to asset sales – taking advantage of increased asset valuations in the run-up to the global financial crisis
Core earnings in 2011 impacted by QCB’s monetary policy (eg consumer lending rate restrictions, reference rate reductions)
(QR 000') 2006 2007 2008 2009 2010 2011
NPAT 577,389 678,026 705,596 782,218 888,297
917,826
Less: Non-Recurrent Earnings
Gain on sale of investments 30,040 84,649 67,392 2,928 -1,890 2,098
Dividend Income (from investments) 24,769 38,079 57,498 32,493 63,167
170,436
Provision for investments 11,047 26,752 86,954 0 41,045 1,821
Other non-core earnings (Real Estate, associates income) 5,722 24,068 124,894 15,850 58,839
14,051
Core Earnings
Core Earnings NPAT 527,905 557,982 542,766 730,947 809,226 733,062
Non-core Earnings NPAT 49,484 120,044 162,830 51,271 79,071 184,764
Key Performance Indicators
Core Earnings / NPAT 91.4% 82.3% 76.9% 93.4% 91.1% 79.9%
75
398529
783855 851
335
354
87
128205
64
80 88
10077
13
-25
6
97
2007 2008 2009 2010 2011
Income from Financing Activity Income from Investing Activity
Commission and Fee Income Trading Income
810 938 964 1,092 1,140
Revenue: Analysis
Source: QIIB Financial Statements
Commentary
Financing activity core revenue source for the Bank and has grown strongly from FY07 to FY11
Income from investing activities stable from FY07 to FY08 with subsequent reduction in FY09 and FY10 due to the impact of the global financial crisis
Commission and fee income relates to revenue earned on upfront, transactional, establishment and commitment fees, which has grown from FY07 and remains strong
Trading income represents a small part of the revenue base of the bank, primarily FX and since 2011, augmented by limited Sukuk trading.
76
Expenses: Analysis
Source: QIIB Financial Statements
Commentary
G&A represents the largest expense line item in the P&L and this has grown in line with bank balance sheet growth
QIIB apply a prudent approach to expense management
Commission and fee expenses from FY07 to FY11 represent a small part of total expenses
Depreciation and amortisation has grown moderately between FY07 to FY10, and has remained stable from FY09 to FY10 to FY11
Global financial crisis has cooled expense growth significantly from FY09 to FY10, but FY11 cost increases partly due to Qatari pay-rise
77
4 5 6 6 7
94
129149 154
1827
8
10 12
13
0
50
100
150
200
250
2007 2008 2009 2010 2011
Commission and Fee Expenses General Administrative Expenses
Depreciation And Amortization
105 142 165 172 202
Profit Sharing Cost
78
(QR '000s) 2009 2010 2011
Average Balances 10,324,672 12,714,920 15,957,319
Profit Sharing Cost 270,881 329,470 264,790
Deposit Financing Rate 2.6% 2.6% 1.7%
Capital Adequacy
Commentary
Extremely strong capital base, sustaining at the circa 20% mark between FY08 to FY09, and with capital adequacy at 24.76% as at 31 December 2011
Capital quality is very high with Tier 1 capital adequacy ratio at 23.77% as at 31 December 2011, consistent with historical levels
Total capital ratios from FY06 to FY11 have consistently ranged between 20% - 25%, which is above the average capital adequacy ratio for the Qatari banking sector
(QR ’000) 2006 2007 2008 2009 2010 2011
Tier 1 capital 1,383,787 2,290,013 2,440,024 2,491,390 3,002,300 3,922,756
Tier 2 capital 28,401 42,369 42,410 10,460 107,478 163,160
Total capital 1,412,188 2,332,382 2,482,434 2,501,850 3,109,778 4,085,916
Total risk weighted assets 5,746,384 9,302,122 12,347,022 12,613,803 12,961,891 16,502,178
Tier 1 capital ratio 24.08% 24.62% 19.76% 19.75% 23.16% 23.77%
Total capital ratio 24.58% 25.07% 20.11% 19.83% 23.99% 24.76%
Key Performance Indicators
Tier 1 capital (Year on Year) n/a 65.5% 6.6% 2.1% 20.5% 30.66%
Tier 2 capital (Year on Year) n/a 49.2% 0.1% -75.3% 927.5% 51.81%
Total capital (Year on Year) n/a 65.2% 6.4% 0.8% 24.3% 31.39%
Total risk assets (Year on Year) n/a 61.9% 32.7% 2.2% 2.8% 27.31%
Total capital ratio (Year on Year) n/a 2.0% -19.8% -1.3% 21.0% 3.20%
79
Dividend Approach
• Transfer of profits (10%) to statutory reserve up to 100% of paid-up capital
• Basel II capital requirements• Central bank approval required
Regulatory requirements
• Capital requirement for growth, expansion• Capital adequacy planning: Basel III implementation• Management / board consensus• Up-streaming from subsidiaries/associate investments
Internal / business
requirements
• 40% - 45% payout annually• Manage shareholders’ expectations vis-à-vis
internal/business requirements• Majority shareholders representation on Board of
Directors
Shareholders expectations
80
Ratios
Commentary
Loan loss reserve to gross loans at circa 1% is supported by risk reserve at 1.75% of gross financing facilities
Non-performing loans ratio remains low at 1.6%, below banking sector average
Liquidity improving and stable Strong capital base has
resulted in reducing ROE from 19.5% in FY08 to 14.7% in FY10, but improving in 2011 with growing profitability to achieve 15.0% ROE
Stable efficiency ratio at circa 20% mark
2008 2009 2010 2011
Assets Quality Ratios
Loss Reserve to Gross Islamic Financing Facilities 0.7% 0.7% 0.9% 1.0%
Non-Performing IFFs to Gross IFFs 1.4% 1.7% 3.1% 1.6%
Loss Provision Charged to Gross IFFs 0.0% 0.2% 0.1% 0.2%
Capital Adequacy Ratios
Total Equity to Total Assets 21.7% 24.5% 21.0% 20.9%
Total Equity to Gross IFFs 33.4% 41.5% 41.2% 42.1%
Free Capital Funds (Riyals) 2,279,306 3,236,024 3,373,287 3,804,517
Liquidity Ratios
Net IFFs to Total Deposits 90.1% 78.4% 64.9% 58.5%
Liquid Asset Ratio 23.4% 30.2% 40.5% 43.5%
Profitability Ratios
Return on Average Assets 8.2% 6.8% 6.6% 5.5%
Return on Average Equity 19.5% 15.5% 14.7% 15.0%
Cost/Income 18.9% 23.2% 21.2% 22.4%
EPS 3.97 3.89 4.03 4.38
Cash Dividend Payout 40.00% 40.00% 37.50% 35.00%
81
Performance Review and
Forecast
Regular reviews of performance Regular forecasts to supplement budget and performance monitoring
Bottom up Approach
Top Down Review
Individual business and operating units prepare a unit-level budget Drawn from the strategic plans Financial budget developed from non-financial aspects as well
Overall objectives communicated to units Review of budgets by business and operating units Managed top down development vs Board of Directors expectations Final approved budget communicated to all units
Financial Planning Process
82
DISCLAIMER
Acceptance by recipients of a copy of this document will be deemed to constitute an acknowledgement and agreement that:
• this document has been prepared by QIIB and accepts no liability, express or implied, to any other parties or recipients; • the reliance which can be placed upon this document is a matter of commercial judgment and each recipient must make,
and will be deemed to have made, such investigations as it considers necessary to form its own opinions on the subject of this document;
• this document has been based upon information which is believed to be reliable but has not been independently verified by QIIB, as such, QIIB accepts no liability or responsibility for the adequacy, accuracy, completeness or currency of, nor makes any representation or warranty, express or implied, with respect to the information contained in this document or on which this document is based or as to the reasonableness of any projections which this document contains;
• QIIB accepts no responsibility or liability for advising any recipient of any changes or additions to the information contained in this document;
• QIIB may, from time to time, trade in any securities, either as principal or as intermediary, underwrite an issue of securities, earn brokerage or commission or have a long or short term position in any securities or instruments which are the subject of this document;
• the law in certain jurisdictions may restrict the distribution of this document and recipients warrant that they are required to inform themselves about, and to observe, any such restrictions, and QIIB accepts no liability to any person in relation to the distribution of this document in any jurisdiction; and
• this document does not constitute, and may not be used in connection with an offer or solicitation in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.
• For the purposes of this disclaimer, QIIB refers to Qatar International Islamic Bank, its subsidiaries and associated companies, together with their respective directors, officers, employees and agents, both collectively and individually.
83
Appendix A: Risk Management
Framework
Philosophy
Risk Management: Framework
Key Techniques
Detailed and documented framework Quantification of risk parameters where possible International best practice Continued development of credit and operational risk management processes Implementation of internal rating, collateral management and operational risk
systems Mechanism to identify, assess and control the risks to which the Bank is exposed
to
To ensure that QIIB is not subject at any time to any undue or excessive risks beyond the levels approved by the Board of Directors
To achieve a balance between the current and future risks incurred by QIIB and its targeted returns on equity for its shareholders
To protect the reputation, solvency and liquidity of the group or its ability to conduct its selected businesses in a continous manner
Internal Credit Risk Ratings Stress Testing
85
Reorganisation of credit extension functions and segregation of duties separating portfolio development and management, operations and monitoring into three different areas of responsibility
Segregation
Board approved credit underwriting policies for three business segments: corporate, SME’s and retail banking
These policies incorporate standards in accordance with industry advances and best practices
The Board has approved policies governing extending credit and investments into foreign markets or to foreign entities
Board Approvals
Establishing a risk-based hierarchy for credit approvals consistent with a conservative approach limiting individual authorities
Adequate customer diversification Adequate collateral with appropriate levels of authority Efficient and effective credit approval process and credit control limits Adequate provisioning and compliance with regulatory limits and guidelines
Policies
Adopting a committee-based evaluation process to ensure different views are taken into consideration
Portfolio performance monitoring and reporting to the boardCommittee Evaluation
Risk Management: Credit Risk
86
Board approved market risk policies consistent with Basel II requirements Additional standards for profit-rate (interest) risk are included in the board
approved Basel II implementation documents Periodic reporting to Board, ALCO and Risk Committee
Board
Comprehensive and conservative policies covering equity price risk, liquidity risk , FOREX risk and profit rate risk
No open positionsPolicies
Risk Management: Market Risk
Stress Testing
Periodic stress testing and scenario analysis
87
Comprehensive operational risk management policy A functional automated operational risk framework and reporting system is
envisioned pending Board approval, which is expected, that will cover (a) risk and control assessments (b) key risk indicators and (c) risk and loss events database
Operational risks are being mapped with correlated risk mitigants Proper IT security focus Strict web monitor QIIB manages its operation risk in line with QCB’s directives and Basel accord
guidelines
Operational Risk
Treasury manages liquidity in coordination with the financial controller Credit and market risk department monitors liquidly risk and submits regular
reports to the Risk Committee Historically QIIB has not experienced any liquidity concerns, however, mitigating
measures are in place should it become an issue
Liquidity Risk
Risk Management: Operational & Liquidity Risk
88
Risk Management: Policy Supports
Risk managers report directly to the Board
Three separate departments that manage and monitor QIIB’s risks
Adequate segregation of duties
Consistent reporting to the Board and management
Ongoing training and development
Independent reviews: internal and external
auditors and regulators
Implementation of integrated MIS software
Experienced personnel Policy and Procedure Manuals
89
Risk Management: Basel II & III
Basel II
Pillar 1: implemented
Basel II
Pillar 2 and 3: not fully implemented in Qatar
Basel III
Intended accelerated implementation timetable
90
Appendix B: Credit
Credit: General Principles
Completeness
Customer Knowledge
Credit Legitimacy Principle
Collateral
Collectability
QIIB requires each customer to have a specific credit repayment schedule, fully documented. To this end, customers shall be obliged to provide full and accurate financial information supporting smooth credit repayment
It is reasonably required that no adverse market information or credit aggregate position /credit bureau data exist against the customer or any other parties involved
QIIB does not grant credit facilities to individuals or businesses managed or controlled by persons whose ethics, reputation, or business legitimacy are questionable
QIIB grants credit facilities, at their own discretion, to customers whose financing, as well as the use of credit products are transparent and abiding by the rules and regulations of Central Bank of Qatar
A secondary repayment source shall be ensured for every credit, in addition to the first way out which is the cash flow. Apart from that, and on a case-by-case basis, it is imperative to take sufficient collateral and/or security minimizing credit risks or guaranteeing timely payment. Some of the key principle being
No credit facilities to lines of businesses we have no knowledge / No credit facilities to, charity funds, or other non profitable institutions / No credit facilities for weapons or military systems / Financing start up businesses requires extremely careful handling (e.g. new products, new technology)
QIIB controls, handles and monitors effectively the credits granted to customers, in order to secure their Collectability and proceed with business or legal actions in time, for the protection of Bank’s interests
92
QIIB Overview
PORTFOLIO LEVEL Clear tolerance limits and risk policy set at the Board level Portfolio quality is examined on a regular basis with periodic stress testing Concentrations together with mitigation strategies are continuously
assessed Credit risk rating is based on quantitative, qualitative and expert judgment Concentration risks are managed continuously by diversification Credit limits for borrower, ownership and industry sectors The “one obligor concept” used in the Bank to identify aggregate exposure
to any one single borrower or group of borrowers who are related in such a way as to present the same risk profile as one single borrower
Monitoring capital adequacy required according to Basel II and the Qatar Central Bank regulations
The Bank continues to upgrade and fine-tune the above in line with increasing regulatory requirements and the challenging business and financial services industry environment
CUSTOMER LEVEL Rigorous financial, credit,
obligor’s risk rating and overall risk analysis for each customer / transaction
Annual and interim individual credit reviews any weakness or warning signals and consider proper remedies in case of need
Solid documentation and collateral management process with proper coverage and top-up triggers and follow-ups
Credit: Monitoring
Overview: The Board of Directors reviews and affirms QIIB’s overall credit risk policy and through its various committees,
ensures that senior management maintains comprehensive credit risk management policies. The bank addresses the challenge of banking risks comprehensively under an overall enterprise risk management
policy applying strict financing practices. Risk management reports to the Board’s Risk Committee. Credit risk management enhances the centralized reporting of credit risk and is responsible for the rollout of the
internal risk rating system within the Bank.
93
Credit: Reports
Frequency of Reports Credit risk management reports to the Board’s Risk Committee on a quarterly basis and on an adhoc basis where required
MIS Reports / OtherInternal Risk rating figures.
Credit Portfolio figures, past dues figures, Capital Adequacy
Scope of reportsCredit risk management reports includes credit portfolio figures,
concentration, past dues figures, capital adequacy,
internal risk rating, expected loss and various stress tests on
the financing book
94
QIIB Overview
Financial viability of the proposed transaction Detailed analysis of key financial data Verification of the analysis results by comparison with external ratings agencies Country, currency and banking rates provided by external rating agencies, where
available Evaluation of proposed limits according to the results of financial data analysis
Credit: Setting Limits
The limits for transactions with institutions in each country are proposed by QIIB's International Investment Department. The Market Risk Department role is to raise recommendations or concerns regarding these limits to the limits committee depending on the following:
95
QIIB OverviewCredit: Non-Performing Financing Facilities (NPFF’s)
QCB define NPFF as:non-performing credit facility as “such amounts do not fulfill their commitments in conformity with the due dates and agreed conditions for a period of 3 months or more, or there are indicators or evidence that such account holders are not able to fulfill their commitments in full as agreed upon
QCB use the following NPFF classifications: Substandard 3 months or moreDoubtful: 6 months or moreBad: 9 months or more
(Reference: Qatar Central Bank Regulations – Instructions to Banks (March 2009) Eleventh Edition - Part (VII) – Third)
KEY INDICATORS OF NON PERFORMANCE
Customer has defaulted to pay one of the installments of the financing or the like
The agreed payments of the other direct credit facilities are past due
The limited granted for the other direct credit facilities is not renewed without submitted any acceptable reasons
The balance exceeds limits granted for the other credit facilities by 10% or more without submitting any acceptable reasons
OTHER INDICATORS OF NON PERFORMANCE
Borrower’s group has doubtful or bad accounts that have negative effects on the borrower
Insufficiency of sources for repaying the full value of the debt as well as the insufficient collaterals
There are insufficient repayments to the overdrafts and overdrawn accounts that meet the nature of the account or the agreed conditions
Gaps in the contract
Evidence of customer insolvency
Policy: Follow QCB concentration definition and regualtions
96
QIIB Overview
Credit: Provisioning Policy
Banks shall apply the following haircuts on the collateral for the following categories:
Real Estate: 50% of the market value may be deducted but must not exceed 50% of the outstanding balance of the credit facility under the following circumstances: (a) the real estate should be the first degree mortgage in favour of the bank (b) no difficulty in selling the property in favour of the bank (c) two independent valuations
Securities: 50% of the market value of stocks or other securities listed in the exchange shall be deducted from the outstanding credit facility under the following circumstances: (a) the bank should possess pledges in favour of the bank to be able to sell the securities to settle the debt (b) no hurdles to liquidate the securities to settle the debt
Customer Deposits: 100% of customer deposits on which the bank has a lien may be deducted from outstanding credit facilities
Bank Guarantees: 100% of the unconditional bank guarantees may be deducted if the same is issued by banks with internationally acceptable rating
Precious Metals: 50% of the market value of the precious metal shall be deducted provided that the metal are independently valued and the bank has the appropriate pledge in favor of the bank
Reclassification of Credit Facilities
Banks are required to inform the QCB whereas they want to reclassify the credit facilities from non-performing to performing credit facilities as outlined in QCB circular no. (98/2006) dated 10/07/2006
Updating and Submission of Provision Data on Non-performing Credit Facilities
Banks shall complete data entry and updating on provisions made against NPL’s through the IT systems as per QCB instructions
97
QIIB Overview
Credit: Risk Concentration
Maximum Limit of Credit Concentration Single Customer (credit facility): 20% of banks capital and reserves Major Shareholder: 10% of banks capital and reserves Single Customer (borrowing group): 25% of banks capital and reserves or must not exceed QR 3 billion Associate: 25% of banks capital and reserves Banks Staff: not allowed with the exception of finances granted to their employees for personal purposes in accordance with
their internal employment policies approved by the Board and HR departments External Auditor and Related Families: not allowed Other:
Total credit facilities granted to all customers and their borrowing groups, at 10% or more of bank’s capital and reserves, must not exceed 600% of banks capital and reserves
QCB approval is required for granting finance at 10% or more of the banks capital and reserves and the maturity exceeding 10 years
Total credit granted to related parties must not exceed 100% of bank’s capital and reserves Bank Limits:
Credit facilities granted to Ministry of Economy and Finance and to the institutions and corporations sponsored and guaranteed by the Ministry of Economy and Finance
Credit facilities guaranteed by cash deposits or margins Credit facilities guaranteed by irrevocable and unconditional banking guarantees from a bank or financial institution Bid bonds and credit facilities granted by banks
Policy: Follow the QCB concentration definition and regulations
98
Credit: Risk Concentration
Real Estate (Maximum Granted to All Customers) The average of the total amount of 150% of the banks capital and reserves and 15% of customer deposits, with the exception
of deferred profits, when calculating the total amount of real estate financing, with the following exceptions: Real estate finance granted to the government that are guaranteed by the MOF; Finance granted to contractors to carry out the real estate projects for the public and private sectors ; Real estate projects against the following collaterals: (a) guarantee from MOF (b) cash collateral (c) unconditional and
irrevocable bank guarantee issued by a financial institution with a sound financial position;
Consumer Finance Facilities (Maximum) Total monthly obligations against customer’s salary, including obligations of consumer finance, should not exceed 50% of salary The maximum consumer finance facility limit to a single customer should not exceed QR 2.5 million with a maximum period of 7
years
Country (Percentage to Capital and Reserves – Tier 1) First Category Country 0% risk weighted according to Basel II 250% of Tier 1 Second Category Country 20 - 50% risk weighted according to Basel II 100% of Tier 1 Third Category Country > 50% risk weighted according to Basel II 50% of Tier 1
Deposits First Category Banks Rated not less than A3 and A- not exceed 25% of banks capital and
reserves Second Category Banks Rated not less than Baa2 and BBB not exceed 10% of banks capital and
reserves Third Category Banks Rated less than 2nd category not exceed 5% of banks capital and reserves
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