Fitch Ratings-London: Fitch Ratings expects the recently announced merger of Al Khalij Commercial Bank (AKCB; A/Stable/bb) with Masraf Al Rayan (MAR) to be neutral to AKCB's Issuer Default Ratings (IDR), which are driven by potential sovereign support. The merger has been approved by the board of directors of both banks and is expected to be completed in 1H21, subject to central bank and regulatory approvals. Upon the completion of the merger, AKCB will be dissolved and its ratings will be withdrawn. MAR will be the surviving entity, continuing to operate as an Islamic bank.
AKCB and MAR will continue to exist independently until the effective day of the merger. AKCB's IDRs reflect Fitch's expectation of an extremely high probability of support from the Qatari authorities for domestic banks in case of need. This reflects the strong ability of Qatar to support its banks, as indicated by its rating (AA-/Stable), although the size of the banking system relative to GDP is high, combined with Fitch's belief of a strong willingness to support the banking sector, including AKCB.
AKCB's Support Rating Floor (SRF) is at the Qatari banks' domestic systemically important bank (D-SIB) SRF of 'A' and is not differentiated by franchise or level of government ownership because we believe there is an extremely high probability that all rated Qatari banks would receive support should they require it. This belief also partly reflects the risk of contagion (small number of banks and high concentration of banks in the system) and the importance of the banking system in building the local economy.
The ratings of the debt issued by AKCB's special purpose vehicles (SPVs) are also unaffected by the merger. The ratings are in line with AKCB's Long- or Short-Term IDRs because Fitch views the likelihood of default on any senior unsecured obligation issued by the SPVs the same as the likelihood of default of the bank. AKCB's outstanding USD50 million and USD500 million senior unsecured notes maturing in February 2021 and October 2023, respectively, will remain under the SPVs until maturity.
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Additional information is available on www.fitchratings.com
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