Qatar Islamic Banks Financial Results - Example

Qatar Islamic Bank has been one of the most significant financial institutions in the world. The bank has been active since 1982. The bank was set up was in order to enhance the financial well-being of the entire Muslim community in Qatar and the entire world (Alam and Murad, 2014). In fact, all its activities are purely for the benefit of the Muslims. In other words, it does not allow people from other religious backgrounds to access its services, or even invest in its shares. In addition, the bank recognises the social status of different people through setting up different avenues for the rich and the middle-class via its branches, which are well distributed in Qatar.

• 4.0. Significance of performance

Basically, the financial position of a business and the entire direction taken by a company over a certain period of time goes a long way in determining the decisions of the potential or the actual investors in the company (Edwards, 2013). The rate of interest highly determines the rate of investment in any company. However, nowadays, profitability of a certain venture has become the sole determinant of the rate of investment in the same, according to research findings by various researchers (Nichol and Dowling, 2014). The more profitable a venture is, the higher the rate of investment.

Qatar Islamic Bank has a perfect management structure that is aimed at increasing its profitability. At the same time, the interests of the investors are safeguarded. In fact, investors feel confident whenever the management of the company they own shares in is profit-oriented (Grant, 2015). The Qatar Islamic Bank has recorded various financial positions over the years. This fluctuation is significant to the shareholders, in that they might record higher profits in terms of dividends whenever the changes are favourable. The following is a ration analysis of the bank.

• 5.0. Financial statements

Financial statements refer to the documents that describe the position of a certain business entity (Kim et al., 2016). Some of the common financial statements include balance sheets, trial balances, and profit and loss accounts among others. Such statements are essential in forecasting the direction of a business. Therefore, they play a very important role of facilitating decision making to the investors and the managers of institutions. It is always difficult for people to get access to the books of records of certain businesses, especially when they are privately owned (Robson, 2013). In the case of Qatar Islamic bank, the information is readily accessible to the shareholders since they are the owners.

Being a shareholder Qatar Islamic Bank is a good experience. Investing hard earned income requires one to keep track of the direction the bank is heading towards, and then decide whether to hold on to the shares, buy more, or sell them depending on the profit margins such activities would generate (Fernandez, 2013). It would be a little difficult to provide the actual details of each and every transaction of Qatar Islamic Bank since they are many and the entire system is quite complex (Leonardi et al., 2016). However, this can be easily covered through the analysis of the bank’s performance over the recent years as discussed below.

• 6.0. Findings (Statements’ Overview)
  • 6.1. 2010

Based on its vision and mission, the main objective of Qatar Islamic Bank in 2010 was to provide perfect services to the consumers in regard to the Islamic guidelines, as well as ensuring moral values are upheld in the banking system (Naser et al., 2013). Following the economic depression experienced in 2009, the entire economy of Qatar recorded a significant improvement of about 14 percent (Sakr and Jordan, 2016). Contrarily, the property avenue of the economy, commonly known as real estate, did not perform as expected. Considering that it is one of the sources of hefty profit for Qatar Islamic Bank, a decline was expected in 2010. However, the bank was able to record significant improvements.

Islamic laws at the bank were not breached at any single instance of operation in 2010 (QIB, 2010). Interestingly, the assets Qatar Islamic Bank in 2010 grew a rate of 32 percent and the board of directors forecasted that the number of branches for the institution would be thirty five for year 2011 (QIB, 2010). Perhaps, the reason behind such confidence in the directors was the bank’s success in the previous years, along-side the adoption of successful strategies as well as highly qualified personnel.

In 2010, the shareholders of Qatar Islamic Bank were to each receive a fifty percent rise in their share value. The asset value for the company in 2010 did not break the trend of the stable increase. In fact, the assets were valued at Qr. 51,840 million, which is a very high value compared to the 14,889 recorded in the year 2006, while the overall shareholder’s equity in the company was 9,124 million (QIB, 2010). This too was a stable increase over the years since 2006. According to the balance sheet as at the end of the 2010 financial year, the liabilities were 20,979 million, which were outdone by the asset level, leaving a profit of 1,805 million in terms of the Qatar currency (QIB, 2010). The profits brought an increase to the shareholder’s dividends depending on individual share equity.

• • 6.2. 2011

In 2011, the general world economy had recorded stagnation in the state of depression for a number of months (QIB, 2011). Just like in 2010, Qatar Islamic Bank fought its way to becoming better. The objective of the bank was similar to that of 2010. However, the expectations for the year were a little bit higher. Generally, the economy of Qatar had experienced more growth in 2011. Services relating to wholesalers and retailers were tremendously improved by Qatar Islamic Bank. More importantly, the Islamic guidelines were upheld throughout 2011, in relation to the bank’s 2011 vision and mission (QIB, 2011).

Due to the involvement in lucrative projects, Qatar Islamic Bank was able to raise the assets to a value close to 59 percent (QIB, 2011). A good example of the major projects that were handled in 2011 was that of Barzan Gas. A highly qualified team was deployed to train the personnel in Qatar Islamic Bank on financial dealings. This would go a long way to enhance the success of the institution because the employees not only possess relevant skills, but also competency in the applicability of the same. In addition, some of the main shareholders such as Aljazeera, Aqar, and Bawat-Alshamal, among others, were set to grow tremendously and increase their stakes in Qatar Islamic Bank (QIB, 2011).

An international dimension was also added to the company through investment in global companies such as QInvest, Arab Finance House and Asian Finance Bank among others. This would go a long way to boost the portfolio of Qatar Islamic Bank at large. Benefits that accrue from such activities are also enjoyed by the shareholders directly or indirectly, depending on the intensity of their effect on the share capital value (QIB, 2011).

On the financial statement of the bank in the year 2011, the total assets were valued at 58,286 million, which was a 39 percent growth from the previous years, while the deposits to the bank had reduced to 27,657 which is a slight decline as compared to 2010 (QIB, 2011). Investments had increased from 35,551 in 2010 to 46,821 in 2011 (QIB, 2011). The total shareholder equity increased from 9,052 to 11,202, which was a significant value (QIB, 2011). This meant that investments into Qatar Islamic Bank had increased by 24 percent.

• • 6.3. 2012

Qatar Islamic Bank started on a high note in the beginning of the financial year 2012. The objectives of the company were still based on the same vision, mission and values, with the aim of a higher achievement (QIB, 2012). 2012 was year of tremendous improvements in terms of assets, operating income, investments, equity and share capital. Qatar Islamic Bank embraced a tightened strategy in order to conquer the international market, with the help of global investments and related companies, such as QIB UK and Arab Finance (QIB, 2012). There was a great change in the human resources of the organization as a new Chief Executive Officer was put in charge of overseeing the activities of Qatar Islamic Bank in general.

According to the acting CEO, Meshari, Qatar Islamic Bank recorded a 25 percent growth in the asset base to an astounding 73 billion in Qatar currency (QIB, 2012). The growth in assets was triggered by various investment activities by the institution that amounted to 43 billion (QIB, 2012). This means that the bank recorded 45 percent growth in investments, taking 2011 as the base year. The balance sheet in 2012 balanced at a higher value compared to the previous years. The revenue generated from normal operations of Qatar Islamic Bank in 2012 rose to 3 billion, a 15.9 percent increase, holding 2011 as the base year (QIB, 2012).

Despite the great increase in the value of the assets and other finances, Qatar Islamic Bank’s net profit reduced significantly. The profit value moved from 1,322 to 1,241 and the share capital remained constant at 2,363 for 2012, with 2011 being the base year (QIB, 2012). The total dividends given to the shareholders decreased automatically in 2012, while total investments remained the same.

• • 6.4. 2013

In 2013, Qatar Islamic Bank decided to make its objective as well as vision and mission a little more specific. Special personnel were hired in a bid to improve the entire output of Qatar Islamic Bank, in relation to the key objectives. In 2013, the bank embarked on handling important projects such as Qatar rail that would raise the bank’s overall financial position by making the lives of citizens easier consequently encouraging more investment. This is because the transport sector is one of the most rewarding sectors in the Qatari economy (Fernandez et al., 2016). International investments were also harnessed so as to make the bank recognised in Islamic countries such as Malaysia and the rest of the world (QIB, 2013).

Qatar Islamic Bank assets increased at the rate of 5.6 percent (QIB, 2013). Deposits by customers increased at a rate of 16.7 percent, reaching 54 billion in the year 2013 (QIB, 2013). The overall income for 2013 rose to 3,144 million, recording a 1.3 percent increase, holding 2012 as the base year (QIB, 2013). The revenue from the normal activities also increased from 2,666 million in 2012 to 2,802 million in 2013, which is approximately a 5 percent rise (QIB, 2013). Such improvements saw the growth of Qatar Islamic Bank’s the asset base. The net profit in 2013 also increased at a rate of 7.7 percent. This was good news to the shareholders because the amounts attached to the dividends they earned from Qatar Islamic Bank would increase proportionally. However, just like in 2012, the share capital value remained the same in 2013.

• • 6.5. 2014

In 2014, the vision, mission and values of Qatar Islamic Bank remained unchanged. According to the board of directors, 2014 brought success along with it. Generally, technology in the world took a great turn with the digitalization of activities in 2014 (Kassabian, 2016). Qatar Islamic Bank computerised almost all of its services. There were no significant changes in the management of Qatar Islamic Bank. The pricing of oil and its products had reduced in Qatar and this could affect the banking systems negatively (Farzanegan et al., 2015). However, the economy was able to register a growth of 6.2 percent in general.

The overall vision 2030 for the entire country is the force of growth in Qatar. All the companies are aware of this and hence they adopt strategic plans in order to seize the opportunities that sprout in the economy (Ibrahim, 2016). All the activities of Qatar Islamic Bank were aimed at offering the best services in accordance to the Islamic laws after achieving most of its objectives in 2013. As mentioned above, the main objective in 2014 was to capture the attention of potential customers and investors as well as acquiring and retaining them. To some extent, this was successful. Any progress in an entity has to reflect in the financial statements of the company in order to evaluate the position of its shareholders (Choudhury 2016).

In the previous years, Qatar Islamic Bank shareholders were experiencing success, despite having a few downs here and there. In 2014, the asset value increased at a rate of 24 percent to 96 billion (QIB, 2014). Deposits by consumers of services at the bank increased at a rate of 32 percent to 67 billion, taking 2013 as the base year. The bank’s total income also increased by 16 percent to stand at 3,633 from 3,144 recorded in 2013 (QIB, 2014). More importantly, the net profit increased to 1.6 billion, which was a 20 percent increase compared to 2013 (QIB, 2014). In order to motivate the shareholders, Qatar Islamic Bank allowed a rise in dividends at 42.5 percent (QIB, 2014). This meant that the amount per share rose to 4.25, which was positive progress for Qatar Islamic Bank and the individual shareholders.

• • 6.6. 2015

In 2015, there were no changes in the objectives of Qatar Islamic Bank in relation to the vision, mission and value of operation for the institution. The management structure of the bank remained the same. The Qatari economy experienced some mild recession in the early and the mid-period of 2015 (Salama et al., 2016). Such fluctuation can be detrimental to the financial positions of businesses. However, Qatar Islamic Bank still fought its way up in order to secure the welfare of the shareholders and encourage further investment.

The main drive for Qatar Islamic Bank in 2015 was the desire to outdo the performance of 2014, which was indeed very good. Therefore, projects, international and local investments as well as personnel expertise were enhanced. It is important to know that both the eternal and the internal factors that affect the performance of Qatar Islamic Bank had to come to play to determine the fate of the shareholder (Ghazier and Soltani, 2016).

The bank’s asset value for 2015 was 127 billion. This means that the assets had grown at the rate of 32 percent, holding 2014 as the base year (QIB, 2015). The total share capital remained 2,363 million. Therefore, there were no additional investments into Qatar Islamic Bank. Qatar Islamic Bank investments grew at the rate of 26 percent. The net profit increased from 2,270 to 2,961 million, which is at the rate of 30 percent (QIB, 2015). As a result, the shareholders earned more dividends due to the rise in the profit. This was one of the best years in the history of Qatar Islamic Bank (QIB, 2015).

• 7.0. Company’s Objectives

The main goal of a company determines the fate of each of its units (Burke, 2013). The main objective of Qatar Islamic Bank as a company is to offer pleasing banking services to the customers as well as helping uphold the Islamic concerns in the controversial finance sector (Lone, 2015). The goal has been worked upon and is still being worked on by the management and the overseers of the activities by the bank. A company with a clearly defined objective is most likely to succeed since all activities are channelled towards achieving the laid down goals. The shareholder benefits from such success as evident in the information generated from Qatar Islamic Bank documents.

The achievement of the main objective of a company relies on the short term objectives that it lays down. From such objectives, planning and decision making becomes easier for the management of the company (Psomas et al., 2013). Therefore, there are higher chances of obtaining success in the short run. Other objectives that facilitate the success of a business and the interests of the shareholder that are evident in Qatar Islamic Bank include widening the markets, stronger financial endowment, increasing production and early planning (Silva et al., 2013). Basically, all these objectives are aimed at increasing the output of a company. Consequently, the shareholder is shielded from loss that may occur due to changes in either the external or internal business environment.

• 8.0. Ratio Analysis

Basically, ratio analysis refers to the evaluation of financial statements of a company in order to establish its financial status or performance in a certain economic situations (Collier, 2015). It is a very effective approach in determining the viable businesses for investment. Through this tool, one is able to identify flaws in businesses operations, and then take the necessary action against them. The information obtained from the analysis can be used to compare the positions of different companies (Cummins and Weiss, 2013). From such comparison, a potential investor can make the best choice on which company to invest in for better yields. A shareholder can decide whether to sell, retain, or buy more shares in a company, depending on the patterns of performance over a certain period of time (Lazonic, 2014).

Some of the important ratios that should be considered when performing ratio analysis include permanent property turnover, income per unit of human resource, progressive performance of operations and the cycle of activities among many others. However, since the topic of major concern is the shareholder, equity product, dividend ratio and the equity fraction are the most relevant ratios.

• • 8.1. Equity product

Basically, equity product ratio compares the assets of a company with the value of the amount that belongs to the company (Gonzalez et al., 2012). Equity product represents the amount of assets that belong to the shareholders in the company. The ratio shows how deep the company is in debt. It is usually expressed as a percentage. Mathematically, equity product is calculated by finding the quotient between the overall asset value, and the general shareholders’ equity in the company (Emmanuel, 2013). In the case of Qatar Islamic Bank, the equity products for the years 2010, 2011, 2012, 2013, 2014 and 2015 are 5.7, 6.4, 5.6, 5.6, 6.7, and 7.0 respectively.

Generally, if an entity runs its activities through the help of very high amounts of borrowed capital, more money is required in order to settle the debts and leave some profit for sharing (Robinson, 2013). For this reason, the higher the equity product ratio, the lower the viability of the business. In this case, Qatar Islamic Bank seems to enter into more debts to the shareholders.

• • 8.2. Dividend ratio

Dividends refer to the proportion of the investment that a shareholder receives regularly over a certain period of time (Smith, 2015). Dividends are not regular, but the time period is consistent. Basically, the dividend ratio establishes the actual amount that each shareholder gets in relation to the value of a share in the market. The importance of the dividend ratio is that it is an indicator to the shareholder on how well his shares are generating revenue or increasing the asset base depending on stock fluctuation (Hein, 2013). Mathematically, this ratio is calculated by establishing the quotient between the actual value of a share and the prevailing value in the market. Basically, the higher the dividend ratio, the better it is for the shareholders because they earn more dividends with a high ratio (Chen at al., 2013). In this case, Qatar Islamic Bank approved a dividend amount of QR 4.25 per share. The ratio can only be calculated using the prevailing value of a share in the market.

Qatar Islamic bank is listed in the Qatar Stock Exchange market (Farooqi et al., 2015). From the information displayed in the QSE, the current value per share is 102.70 for each share. Therefore, the dividend ratio in the present is 0.04.

• • 8.3. Equity fraction

The equity fraction is also referred to as the equity ratio. Equity fraction represents the total amount of debt that the company owes to the shareholders as the investors (Hanlon, 2015). In other words, this ratio reveals the amount of property or money that would remain to be shared out by the shareholders, if the company was being dissolved. Basically, the higher the equity fraction of a company, the better it is for the investor (Goldstein et al., 2015). The reason behind this that the potential investor is encouraged to give out money to the company confidently since it proves trustworthy. Mathematically, the equity fraction is calculated by getting the quotient between the overall equity value and the overall asset value (Karl and Fischer, 2014). In this case, Qatar Islamic Bank has an equity ratio of 0.18, 0.19, 0.16, 0.15, 0.12 and 0.12 for 2010, 2011, 2012, 2013, 2014 and 2015 respectively. The pattern formed by the equity ratio is declining for Qatar Islamic Bank.

• • 8.4. Income per share

When all the profits are shared out to the shareholder, how much money is allocated to a unit of shares? This is simply referred to as the income per share. The importance of this ratio is that it shows the profitability of investing in a certain company. This ratio is also influenced by the size of the company in question. Normally, a company with a large number of shareholders is most likely to have a lower value of income per unit share (Adibah et al., 2013). The reason behind this is that the company has to divide its profit among a large number of shares. Mathematically, income ratio is calculated by finding the quotient between the net income from dividends and the average number of shares in the company over a certain period of time (Amini, 2013). For Qatar Islamic Bank, the allocation of dividends was allowed at QR 4.25 per share.

The following table clearly indicates the numbers as found in the ratio analysis performed above.

RatioYearValueAnalysis

Equity Product20105.7

20116.4

20125.6Increasing debts

20135.6

20146.7

20157.0

Dividend Ratio2010-

2011-

2012-102.70 is the current share value

2013-

2014-

20150.04

Equity Fraction20100.18

20110.19

20120.16

20130.15reduced investor confidence

20140.12

20150.12

Income per share2010-

2011-

2012-

2013-Uncertain future

2014-

2015QR.4.25

• 9.0. Conclusion

According to the ratio analysis figures of Qatar Islamic Bank found above, the shareholder should pull out of the company by selling his shares or demanding his money back. The reason behind this conclusion is that although Qatar Islamic Bank might seem to be progressing outwardly, the shareholder is actually losing. This is supported by the financial ratio pattern drawn over the past years discussed above. Increasing equity product is undesirable for any company (Goosen et al., 2014). This shows that in the long run, Qatar Islamic Bank will require more money to settle debts owed to the investors. Instead of adding back profit, some percentage will be used to settle debt. Moreover, a declining equity ratio shows that the investors are gradually losing confidence with the bank, and hence they are pulling out slowly in the short run (Heikal et al., 2014). However, over a longer period of time, the investors might pull out completely.

• 10.0. Recommendations

The shareholders of the Qatar Islamic Bank should know the value they hold in the company. Basically, Qatar Islamic Bank cannot be referred to as a company without the shareholders (Carroll and Buchholtz, 2014). These particular shareholders form an integral part of the c Qatar Islamic Bank’s finance. Massive withdrawal of the shareholders can be detrimental to Qatar Islamic Bank (Uysal and Tsetsura, 2015). Therefore, the shareholders should maximize their benefits from Qatar Islamic Bank. The best basis for decision making by the shareholders is to assess Qatar Islamic Bank’s financial position. A good method to apply is the ratio analysis of the financial statements from Qatar Islamic Bank, as it brings out the exact financial track it is following (Uechi et al., 2015). For this kind of evaluation to be successful, the shareholders need to have perfect knowledge of the information relayed in the annual reports of Qatar Islamic Bank.

More importantly, the shareholders should be actively involved in making Qatar Islamic bank a success. Perhaps, this can be done by ensuring that they are loyal consumers of the services offered by the bank. Moreover, they should try their best to attract more customers into the bank in order to increase the deposits’ value. In addition, the shareholders should ensure that they are part of the mission and vision of Qatar Islamic Bank by following and enhancing the values upheld by the Islamic laws. In so doing, the shareholders will only have the management to blame because they will have played their part as the owners of Qatar Islamic Bank in case of losses.