TEXT-Fitch affirms Al Khalij Commercial Bank at 'A-'
Dec 10 - Fitch Ratings has affirmed Al Khalij Commercial Bank (al khaliji) Q.S.C.'s (Al Khaliji) Long-term Issuer Default Rating (IDR) at 'A-' with a Stable Outlook and Viability Rating (VR) at 'bb+'. A full list of rating actions is at the end of this release. RATING DRIVERS AND SENSITIVITIES - IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR Al Khaliji's Long- and Short-term IDRs, Support Rating and Support Rating Floor reflect the extremely high probability of support, in Fitch's opinion, from the Qatari authorities if needed. Fitch's view of likely support is based on the strong history of support from the Qatari authorities for local banks, reflected in recent support measures. While Fitch views Al Khaliji's small size and evolving franchise as constraints from a support perspective, the agency also considers the Qatari government's overall 47% indirect stake as a positive. A change in Fitch's view of the willingness or ability of the Qatari authorities to support Al Khaliji would be negative for its IDRs, Support Rating and Support Rating Floor. RATING DRIVERS AND SENSITIVITIES - VR The VR reflects the bank's high concentrations on both sides of the balance sheet, moderate profitability, short track record and small franchise size. It also reflects Al Khaliji's strong capitalisation, experienced management team and coherent strategy. Given the strong overall prospects for the Qatari economy, Fitch believes the bank will expand and perform better over the rating horizon. Al Khaliji's financial performance is modest but improving, and reflects its start-up character. Although funding costs are relatively low, its spreads on assets suffer from the high proportion of lower-yielding fixed-income securities on its balance sheet, and the short average tenor of its loan book. Asset quality has remained sound to date, primarily due to its unseasoned book and low risk focus. Given its high single-name concentration, risks to asset quality from a single borrower are significant. Al Khaliji's funding base is dominated by deposits from the Qatari government, government-related entities, interbank and repo sources. The latter is confidence-sensitive and not a permanent source of funding for the bank. Single-name concentration within its funding base is very high, although its largest deposits are mainly sourced from government names and tend to be stable. Upside potential for the VR would require Al Khaliji to build its franchise and further develop and diversify its business around the growing Qatari economy. A delay in the strategy being deployed leading to the loss of market share and weaker performance or any deterioration in asset quality, profitability or capital could pressure Al Khaliji's VR. The rating actions are as follows: Long-Term IDR affirmed at 'A-' with a Stable Outlook Short-Term IDR affirmed at 'F2' Viability Rating affirmed at 'bb+' Support Rating affirmed at '1' Support Rating Floor affirmed at 'A-' Additional information is available on www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Global Financial Institutions Rating Criteria' dated 15 August 2012 is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria