Fitch Ratings-London-07 May 2013: Fitch Ratings has affirmed seven Qatari banks following a peer review. The seven banks included in this peer review are Qatar National Bank (QNB; 'A+'/'F1'/'a'), Commercial Bank of Qatar (CBQ; 'A'/'F1'/'bbb'), Qatar Islamic Bank (QIB; 'A'/'F1'/'bbb'), Doha Bank (DB; 'A'/'F1'/'bbb'), Ahli Bank Q.S.C. (ABQ; 'A-'/'F2'/'bbb-'), Al Khalij Commercial Bank (al khaliji) Q.S.C. (Al Khaliji; 'A-'/'F2'/'bb+'), and Qatar International Islamic Bank (QIIB; 'A-'/'F2'/'bb+'). The Outlooks for all seven banks are Stable. A complete list of rating actions for the banks and their related entities is included at the end of this rating action commentary.
KEY RATING DRIVERS: ISSUER DEFAULT RATINGSs (IDRs), SUPPORT RATINGS AND SUPPORT RATING FLOORS
Fitch's view of support is based on a strong history of sovereign support including measures to boost capital, as well as asset purchases, as clearly demonstrated in recent years. Support is the primary factor driving the IDRs.
Qatari banks' IDRs, Support Ratings and Support Rating Floors reflect the extremely high probability of support available from the Qatari authorities if needed. Fitch's opinion of support is based on the ability and willingness of Qatar to support the banking sector. The government owns stakes in all the banks following capital injections into the banking system between 2009 and Q111. Additional supportive actions taken by the Qatari authorities included direct asset purchases (both loans and equities) in 2009. The sovereign's capacity to support the banking system is sustained by its sovereign wealth funds and on-going revenues mostly from its hydrocarbon production.
The Support Ratings and SRFs assigned to each bank reflect differences in the systemic importance, franchise, market share and government ownership of each bank.
RATING SENSITIVITIES: IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS
The ratings would be sensitive to a reduced perceived ability from the authorities to provide support. The ratings could also be sensitive to a change in the authorities' perceived willingness to support the banking sector. Given Qatar's robust economy and the authorities' strong track record of support for local banks, downside pressure is considered low.
KEY RATING DRIVERS: VIABILITY RATINGS (VRs)
Qatari banks' VRs reflect their strong capital base and healthy performance, the strong economic environment supported by public sector initiatives, and stable core funding and liquidity. These strengths are counterbalanced by continued risk with respect to concentrations on both sides of the balance sheet, deteriorating restructured and past due loans at some banks, rapid credit growth and a dependency on government-related spending and Qatar's undiversified economy.
QNB's VR reflects its dominant franchise in Qatar, strong financial metrics, specifically its revenue generation capability, robust profitability, low non-performing loans (NPL) ratio and solid liquidity and capital position. High loan and deposit concentrations, which would otherwise constrain the rating, are mitigated by QNB's borrowers and depositors being primarily lower risk Qatari-government related entities which improves the bank's asset quality. Although VRs consider banks' stand-alone credit fundamentals, not all elements of support can be excluded from the VR assessment: the benefits that QNB receives from its extremely close relationship with the state, including the large proportion of government and government-related loans and deposits, are reflected in its VR.
CBQ's VR reflects the bank's established commercial franchise, strong capitalisation and consistently solid financial performance and low NPL ratio. It also considers concentrations on both sides of the balance sheet, and increasing cumulative restructured loans as well as significant exposure to real estate and the bank's increased exposure to a higher risk market following its Turkish acquisition. Fitch would expect CBQ to support growth by increasing its capital buffer following the acquisition.
DB's VR reflects its robust earnings, stable asset quality, improved capital ratios and the expectation of an additional 25% increase in share capital the bank intends to raise and its established franchise in Qatar. The VR also considers DB's concentrations on both sides of the balance sheet and increasing exposure to real estate and increased past due but not impaired loans.
QIB's VR reflects its healthy but declining capitalisation, steady core earnings, solid stock of liquid assets, leading Islamic franchise and the bank's management which is recognising some of the bank's asset quality issues through increased impairment charges. The VR also considers QIB's concentrations on both sides of the balance sheet and significant real estate exposure. Fitch has concerns regarding QIB's asset quality such as rising, but still low, impaired financing to gross financing, increasing restructurings and rising past due but not impaired financing.
ABQ's VR reflects the bank's solid profitability, satisfactory liquidity and sound capitalisation. An increase in business volumes in the last two months of 2012 and in Q113 boosted Q113 profitability; in 2012 profitability was helped by a sharp reduction in loan impairment charges. Impaired loans are already satisfactorily reserved, and given the Qatari economy's relatively healthy economic outlook and growth prospects, Fitch does not expect a significant increase in the level of impairment charges for the remainder of 2013. However the VR is constrained by the bank's small franchise, the level of concentration in both loans and deposits, and its exposure to higher risk sectors such as real estate.
Al Khaliji's VR is constrained by a relatively small franchise and reflects the concentrations on both sides of the balance sheet, moderate profitability and short track record. It also reflects Al Khaliji's strong capitalisation and strategy to increase lending as a proportion of the balance sheet in a controlled manner as prime lending opportunities arise in the domestic market. Given the strong overall prospects for the Qatari economy, Fitch believes the bank will improve its performance over the rating horizon.
QIIB's VR is constrained by a relatively small and undiversified franchise combined with high sector and single name concentrations in financing. Fitch believes that the bank's reorganisation initiatives should put it in a stronger position to take advantage of opportunities arising from the government's expansionary budget and numerous infrastructure projects. QIIB's strong funding and liquidity position and capitalisation supports the VR at the current level. Large inter-bank balances and liquid investments, including an increasing Qatari government sukuk portfolio, provide a strong buffer.
RATING SENSITIVITIES: VRs
Downside pressure on QNB's VR could be triggered if QNB were to make a material acquisition that exposed it to higher risk markets as well as acquisition and integration risk. Downward pressure on the VR could also come from a sharp deterioration in the domestic operating environment as this would directly impact QNB's financial metrics and prospects. Fitch does not expect any such deterioration given the government's on-going, highly supportive investment programme and influence in infrastructure development. The VR could also be sensitive to QNB being unsuccessful in integrating National Societe Generale Bank (NSGB) - risks to the bank could come from the loss of senior management at NSGB (currently key senior positions are filled by Societe Generale staff) although Fitch understands that the majority of the key business heads are due to remain at the bank. The entry into Egypt ('B'/Negative) also represents a significant move into a higher risk market and a change in business mix for QNB, which could affect the bank's asset quality if the operating environment deteriorates. There is limited upside potential given its already high level.
CBQ's VR is sensitive to changes in asset quality and capitalisation. Due to its concentrated loan book, a small number of exposures can cause large credit losses. While currently comfortable, the proposed acquisition of Turkey's Alternatifbank ('BB'/ Rating Watch Positive/'B'/'b') will lead to a decline in capital ratios. However, Fitch expects CBQ to increase capital to support growth following the acquisition. The acquisition increases credit and integration risk and exposes CBQ to a higher risk market. However, Fitch views the acquisition as ratings neutral at this time. A failure to support growth with increased capital will put pressure on CBQ's VR as will a deterioration in asset quality or rising impairments. Alternatifbank was placed on Rating Watch Positive and Fitch would expect CBQ to support Alternatifbank if required, which could weaken CBQ's VR. A deterioration in asset quality from CBQ's rising restructured loans could also put pressure on the bank's VR. Upside potential would require successful integration of Alternatifbank and improved asset quality, by reducing restructured and past due loans, as well as maintaining high capital buffers and strong core earnings.
Downward pressure on DB's VR could arise from weaker profitability or asset quality if past due loans increase further or there is a material increase in the bank's NPL ratio. Further weakening of the funding profile could also put downward pressure on DB's VR. If DB were to expand rapidly and erode the benefits of its improving capital buffers this could also put pressure on the bank's VR. Upside potential for the VR is limited and would require improvements to the bank's franchise and risk management.
Downward pressure on QIB's VR could come from a further sharp deterioration in QIB's capitalisation as a result of credit growth outpacing capital retention or significant weaker earnings due to higher impairment charges. A further deterioration in asset quality and increase in QIB's NPL ratio or a further increase in restructured loans and past due but not impaired loans will also put pressure on the bank's VR. Acquisition risk exposing the bank to higher risks would also pressure the bank's VR and could trigger a downgrade. Upside potential for the VR is very limited given it is at a relatively high level for a concentrated franchise and exposure to real estate risk. QIB is more reliant on collateral values than other banks which results in lower reserves for impaired loans. A fall in collateral values could require additional impairment reserves which could reduce profitability and put pressure on the bank's VR.
ABQ's VR is constrained by a still small franchise and the consequent level of concentration on both sides of the balance sheet. Upside to the VR could arise if the bank successfully carries out its growth plans, while maintaining its focus on asset quality. A material weakening of asset quality or tightening liquidity - neither of which Fitch considers likely - could put downward pressure on the VR.
Upside potential for Al Khaliji's VR would require Al Khaliji to build its franchise and further develop and diversify its business around the growing Qatari economy while maintaining strong capital, asset quality, profitability and improved funding profile. Poor implementation of the bank's strategy leading to weaker performance or a deterioration in asset quality, profitability or capital could pressure Al Khaliji's VR.
QIIB's VR is sensitive to rapid growth eroding the bank's currently strong capital ratios. A reduction in capital ratios similar to 2012 could put downward pressure on the rating. A significant deterioration in asset quality could also give rise to a downgrade and Fitch remains concerned about risk concentrations in QIIB's financing portfolio. Specifically, QIIB's high exposure to domestic real estate, real estate investments and companies linked to prominent Qatari nationals, which also gives rise to potential corporate governance concerns. QIB is more reliant on collateral values than other banks which results in lower reserves for impaired loans. A fall in collateral values could require additional impairment reserves which could reduce profitability and put pressure on the bank's VR.
KEY RATING DRIVERS AND SENSITIVITIES: SPVs
The ratings of the SPVs, listed below, are in line with the parents' Long-Term IDRs and are sensitive to any change in the parents' IDRs.
Conventional programmes and notes are unconditionally and irrevocably guaranteed by their parents and driven by the parents' Long-Term IDRs.
Sukuk programmes and senior unsecured trust certificates:
The ratings are based on the parent banks' Long-Term IDRs as Fitch views the programmes as originator-backed/asset-based structures under our criteria 'Rating Sukuk'.
A Special Report will shortly be available at www.fitchratings.com with more details on the banks discussed in this RAC, followed by credit updates and full rating reports on each of the individual banks.
Fitch has affirmed the following ratings:
Qatar National Bank
Long Term IDR affirmed at 'A+', Outlook Stable
Short Term IDR affirmed at 'F1'
Viability Rating affirmed at 'a'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A+'
Senior unsecured notes affirmed at 'A+'
QNB Finance Ltd
EMTN Programme Senior unsecured notes affirmed at 'A+'/'F1'
Senior Unsecured Notes (guaranteed by QNB) affirmed at 'A+'
Commercial Bank of Qatar
Long Term IDR affirmed at ' A', Outlook Stable
Short Term IDR affirmed at 'F1'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A'
Qatar Islamic Bank
Long Term IDR affirmed at ' A', Outlook Stable
Short Term IDR affirmed at 'F1'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A'
QIB Sukuk Funding Ltd
Senior unsecured trust certificates Long-Term Rating affirmed at 'A'
QIB Sukuk Ltd
Trust certificate issuance programme affirmed at 'A'
Senior unsecured trust certificates Long-Term Rating affirmed at 'A'
Doha Bank
Long Term IDR affirmed at ' A', Outlook Stable
Short Term IDR affirmed at 'F1'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A'
Doha Finance Limited
EMTN Programme Senior unsecured notes affirmed at 'A'/ 'F1'
Senior unsecured notes (guaranteed by Doha Bank): affirmed at 'A'
Qatar International Islamic Bank
Long Term IDR affirmed at ' A-', Outlook Stable
Short Term IDR affirmed at 'F2'
Viability Rating affirmed at 'bb+'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A-'
QIIB Sukuk Funding Limited
Senior unsecured trust certificates Long-Term Rating affirmed at 'A-'
Al Khalij Commercial Bank (al khaliji) Q.S.C.
Long Term IDR affirmed at ' A-', Outlook Stable
Short Term IDR affirmed at 'F2'
Viability Rating affirmed at 'bb+'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A-'
Ahli Bank Q.S.C
Long Term IDR affirmed at ' A-', Outlook Stable
Short Term IDR affirmed at 'F2'
Viability Rating affirmed at 'bbb-'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A-'
Contact:
Philip Smith (Primary Analyst CBQ, QIB, DB, QIIB,)
Senior Director
+44 20 3530 1091
Fitch Ratings Limited
30 North Colonnade
London, E14 5GN
Laila Sadek (Primary Analyst ABQ, QNB, Al Khaliji)
Director
+44 20 3530 1308
Fitch Ratings Limited
30 North Colonnade
London, E14 5GN
Alan Milne (Secondary Analyst QNB, CBQ, QIB, DB, QIIB, Al Khaliji, ABQ)
Analyst
+44 20 3530 1491
Committee Chairperson
Gordon Scott
Managing Director
+44 20 3530 1075
Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com.
Additional information is available at www.fitchratings.com.
Applicable criteria, 'Global Financial Institutions Rating Criteria' (15 August 2012)', 'Rating Sukuk' (16 August 2012) 'Evaluating Corporate Governance' (12 December 2012), are available at www.fitchratings.com.
© Press Release 2013
