Fitch Ratings-London/Dubai-21 April 2016
Fitch Ratings has affirmed Qatar National Bank's (QNB) Long-Term Issuer Default Ratings (IDR) at 'AA-'. The agency has also affirmed the IDRs of The Commercial Bank (Q.S.C.) (CBQ), Doha Bank (DB), Qatar Islamic Bank (QIB), Al Khalij Commercial Bank (al khaliji) P.Q.S.C. (AKB), Qatar International Islamic Bank (QIIB) and Ahli Bank QSC (ABQ) and International Bank of Qatar (Q.S.C) (IBQ) at 'A+'. The Outlooks on all the Long-Term IDRs are Stable.
Fitch has upgraded IBQ's Viability Rating (VR) to 'bbb-' from 'bb+', which is driven by IBQ's sound strategy for growth, focusing almost exclusively on Qatar. It also reflects the bank's reasonably sound asset quality and liquidity, which compares well with that of many of its peers, notably during the period of tighter sector liquidity in 2015. IBQ's metrics are in line with similar banks in the 'bbb-' range.
A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS
IDRs, Support Ratings and Support Rating Floors
Qatari banks' IDRs, Support Ratings (SR) and Support Rating Floors (SRFs) reflect Fitch's expectation of support from the Qatari authorities for domestic banks in case of need. This reflects Qatar's strong ability to support its banks, as indicated by its rating ('AA'/Stable), combined with Fitch's belief that there would be a strong willingness to do so. The latter is based on a history of sovereign support.
The government has demonstrated a strong commitment to its banks and key public-sector companies, and we expect this to continue despite the effects of lower oil prices. The government owns stakes in Qatari banks following capital injections into the banking system between 2009 and 1Q11. The sovereign's capacity to support the banking system is sustained by its sovereign wealth funds and revenues, mostly from its hydrocarbon production.
Fitch does not believe that franchise or level of government ownership should necessarily lead to a difference in banks' SRFs in the case of Qatar. We believe that there is an extremely high probability that all rated Qatari banks would receive support should they require it, irrespective of franchise and ownership. As a result, Fitch equalises all banks' SRFs and IDRs at 'A+', except for the flagship bank, QNB.
Fitch makes a distinction between QNB's SRF and that of the other banks in Qatar as a result of its status as the flagship bank in the sector, its role in the Qatari banking sector and close business links with the state.
The Stable Outlooks reflect the Outlook on the Qatari sovereign.
VRs
Qatar continues to show solid economic growth (4.1% forecast by Fitch in 2016, 3.7% in 2015) with the authorities remaining committed to infrastructure projects, including Qatar Integrated Rail and a significant expansion of the road network. We expect project momentum to remain strong in 2016 and to provide domestic banks with opportunities for loan growth.
Liquidity is tightening on the back of slower deposit growth, with a decline in public-sector deposits in the banking system. The sector's overall loan to deposit ratio rose to 117% at end-March 2016. Several banks have raised funds from abroad but we believe that liquidity pressures will only slightly moderate in 2016, especially given our view that loan growth will remain strong. Increased competition for deposits is likely to affect banks' profitability, through rising funding costs pressuring margins.
Capital ratios should remain sound, and we consider banks could further increase capital if required; several of them have in 2015 and 1Q16: we consider shareholder support to be generally strong in Qatar. We expect banks' asset quality to remain resilient, although there could be some pressure in such sectors as real estate and possibly construction.
QNB's VR reflects its dominant franchise in Qatar, close links to the Qatari government, strong funding profile with sound liquidity and solid capital position. Profitability is stronger than that of most peers. Risk appetite is fairly conservative despite rapid growth and expansion into some higher-risk markets. High loan and deposit concentrations, which would otherwise constrain the rating, are mitigated by QNB's largest borrowers and depositors being primarily lower-risk Qatari government-related entities.
The Rating Watch Negative (RWN) on the VR has been maintained and reflects Fitch's view that the acquisition of Finansbank will weaken QNB's risk profile. However, QNB has a good record of integrating and managing subsidiaries in weaker operating environments. In addition, the agency considers that Turkey could be an opportunity for diversifying growth in the longer term, an opportunity that is not available in QNB's fairly small undiversified domestic economy. The RWN will be resolved on completion of the acquisition, following regulatory approval from the Qatari and Turkish authorities. Fitch does not anticipate a VR downgrade of more than one notch.
CBQ's VR reflects its strong and established franchise in Qatar, its reasonable, though weakening, asset quality, as well as liquidity that is adequate, and which improved slightly in 1Q16. The VR takes into account CBQ's exposure to Turkey, which increases the bank's risk profile, and weakening profitability; with a return on assets that is well below average for Qatar. The VR also takes into account capitalisation that is just adequate, about average for Qatar following the recent issuance of Tier 1 capital. Loans and deposits are concentrated, although CBQ's concentration levels are better than most domestic banks.
DB's VR reflects its established franchise in Qatar, its relatively diversified funding franchise and its adequate capitalisation. Liquidity is adequate but tightening and asset quality is stable but with an impaired loan ratio slightly higher than most peers. The VR takes into account concentration on both sides of the balance sheet, although concentration levels are lower than those of peers.
QIB's VR reflects the bank's established franchise in Qatar, its sound asset quality, solid funding and liquidity profile with a franchise that is more diversified than that of many peers. Both loans and deposits are concentrated - in common with the sector - although deposits are less concentrated than those of peers and include a strong retail component. The VR also takes into account the bank's adequate profitability, and satisfactory capital and leverage ratios compared with peers. In Fitch's view, aggressive loan growth in 2015 (about +46% yoy at end-2015) could raise the bank's risk profile. We do expect growth levels to significantly decrease in 2016.
AKB's VR reflects its conservative risk management and sound asset quality mitigating its relatively small franchise and undiversified business model, with concentrations on both sides of the balance sheet. The VR also factors in the bank's sound capitalisation, especially following the issuance of Tier 1 capital in 1Q16 and despite rapid asset growth, adequate liquidity and also the bank's proven ability to grow its lending business according to management's plan. AKB's profitability remains weaker than most domestic peers.
QIIB's VR is constrained by its limited franchise and its high sector- and single-name financing concentrations, which increases the bank's risk profile and the risk of fluctuation in its asset quality. The VR also factors in QIIB's sound funding profile, with a more diversified funding base than some peers, its sound capital and leverage ratios, and its strong liquidity that compares well with domestic peers.
ABQ's VR reflects the bank's strong profit generating capacity with profitability ratios comparing well with peers and its sound asset quality. The VR takes into account ABQ's conservative risk appetite but also its small franchise and high concentrations on both sides of the balance sheet. Liquidity tightened significantly in 2015 but liquidity ratios improved in 1Q16 with the completion of its USD500m bond issue. Capital ratios are solid, but Fitch considers a high level of capital to be necessary in view of the above-average loan book concentration.
IBQ's VR reflects and is constrained by the bank's relatively small franchise, and we see no upside to the rating. IBQ has a concentrated funding base and high single-name lending concentrations, which increases the risk of fluctuation in asset quality. However, the VR also factors in the bank's solid capitalisation and sound liquidity. While concentration levels are high and above those of most peers, they are mitigated by the fact that the largest exposures are mainly to government-related entities or else are well collateralised. Asset-quality metrics are broadly in line with peers and we expect the bank's concentrations to improve modestly as it implements its growth plans. Capital ratios compare well with peers, but Fitch considers a high level of capital to be necessary in view of the above-average loan book concentration.
RATING SENSITIVITIES
IDRs, Support Ratings, Support Rating Floors
The IDRs, SRs and SRFs are sensitive to a change in Fitch's assumptions around the Qatari authorities' propensity or ability to provide timely support to the banking sector. At present Fitch considers the likelihood of any change to be small.
VR
Following resolution of the RWN once the acquisition is completed, QNB's VR would be sensitive to its growth strategy in Turkey and other weaker operating environments. Rapid growth in lower-rated markets that would further weaken the bank's risk profile could put pressure on the VR in the longer term. Capital weakening or significant asset quality deterioration in the bank's domestic market could also pressure the VR, but we view this as less likely.
CBQ's VR is sensitive to the increased risks from its Turkish subsidiary, although given the current operating environment Fitch does not expect high levels of growth in the Turkish operation. Fitch expects CBQ to manage its Turkish operation well, with continued improvement in the Turkish subsidiary's performance and asset quality. However, a negative impact from the bank's Turkish operations, if it does occur, could put pressure on the VR. CBQ's VR is also sensitive to weakening capitalisation or liquidity, or worsening of asset quality in its domestic market.
DB's VR is sensitive to any significant weakening of capitalisation or liquidity or worsening of asset quality. We see no upside to the VR.
Upside potential for QIB's VR could arise if the bank maintains its solid franchise while also maintaining a conservative risk appetite and sound asset quality and capital ratios. Further aggressive loan growth that would weaken QIB's risk profile and affect the bank's asset quality metrics and capital position could put the VR under pressure.
AKB's VR is sensitive to a significant deterioration in liquidity or asset quality sufficient to affect the bank's capital. Upside potential - in the longer term - would require the bank to continue building its franchise, and develop and diversify its earnings, while maintaining sound capitalisation and asset quality.
QIIB's VR could be raised if the bank was able to strengthen its franchise and significantly reduce borrower concentration, which is the main constraint to the VR. A material weakening of asset quality severely affecting profitability and capital, which Fitch considers unlikely, would put downward pressure on the VR.
There is little upside to ABQ's VR. The VR could come under pressure if the bank's liquidity position tightens and it is not able to reduce its funding concentrations. A material weakening of asset quality, severely affecting profitability and capital, would also put downward pressure on the VR.
IBQ's VR could be pressured by a failure to maintain adequate capital and liquidity levels, or a significant increase in the bank's risk appetite, which could be a change in strategy or in its underwriting standards. We see no upside to the VR, which is constrained by the bank's limited franchise and high concentrations.
KEY RATING DRIVERS AND SENSITIVITIES: SPVs AND SENIOR DEBT
The ratings of the debt issued by the SPVs, listed below, are in line with the parents' Long-Term and/or Short-Term IDRs and are sensitive to any change in the parents' IDRs.
The rating actions are as follows:
Qatar National Bank
Long-Term IDR affirmed at 'AA-', Outlook Stable
Short-Term IDR affirmed at 'F1+'
Viability Rating 'a'; maintained on RWN
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'AA-'
QNB Finance Ltd
EMTN Programme Senior unsecured notes affirmed at 'AA-'/'F1+'
Senior Unsecured Notes (guaranteed by QNB) affirmed at 'AA-'
The Commercial Bank (Q.S.C.)
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 Ltd
Trust certificate issuance programme affirmed at 'A+'
Senior unsecured trust certificates Long-Term Rating affirmed at 'A+'
See "Fitch Rates QIB's Sukuk Trust Certificate Issue 'A+'", dated 23 October 2015
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 'F1'
Viability Rating affirmed at 'bb+'
Support Rating affirmed at '1'
Support Rating affirmed at 'A+'
QIIB Sukuk Funding Limited
Senior unsecured trust certificates Long-Term Rating affirmed at 'A+'
Al Khalij Commercial Bank (al khaliji) P.Q.S.C.
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+'
AKCB Finance Limited
EMTN Programme Senior unsecured notes affirmed at 'A+'/ 'F1'
Senior unsecured notes (guaranteed by Al Khalij Commercial Bank (al khaliji) P.Q.S.C.) affirmed at 'A+'
AKCB Falcon Limited
Euro commercial paper and CD Programme affirmed at 'A+'(EXP)/'F1' (EXP)
Ahli Bank Q.S.C
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+'
International Bank of Qatar Q.S.C.
Long-Term IDR affirmed at 'A+', Outlook Stable
Short-Term IDR affirmed at 'F1'
Viability Rating upgraded to 'bbb-' from 'bb+'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A+'
IBQ Finance Limited
EMTN Programme Senior unsecured notes affirmed at 'A+'/ 'F1'
Senior unsecured notes (guaranteed by IBQ) affirmed at 'A+'
-Ends-
Contact:
Primary Analyst
Laila Sadek (QNB, CBQ, DB, QIB, QIIB, IBQ, AKB)
Director
+44 20 3530 1308
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Primary Analyst (ABQ)
Eric Dupont
Senior Director
+33 1 4429 9131
Secondary Analyst (QIB, QIIB, IBQ)
Solena Gloaguen
Director
+44 20 3530 1126
Secondary Analyst (CBQ, AKB, ABQ)
Zeinab Abdalla
Associate Director
+971 4 424 1210
Secondary Analyst (QNB, DB)
Eric Dupont
Senior Director
+33 1 4429 9131
Committee Chairperson
Gordon Scott
Managing Director
+44 20 3530 1075
Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com.
Additional information is available on www.fitchratings.com
© Press Release 2016
