Fitch Upgrades 3 Qatari Banks to 'A' on Changed Support Assessment; Affirms 4 Others

Tue Apr 29, 2014 1:29pm EDT

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(The following statement was released by the rating agency) LONDON, April 29 (Fitch) Fitch Ratings has upgraded Al Khalij Commercial Bank (al khaliji) Q.S.C. (AKB), Qatar International Islamic Bank's (QIIB) and Ahli Bank QSC's (ABQ) Long-term Issuer Default Ratings (IDR) to 'A' from 'A-'. Fitch has also affirmed Commercial Bank of Qatar's (CBQ), Doha Bank's (DB) and Qatar Islamic Bank's (QIB) Long-term IDRs at 'A'. Qatar National Bank's (QNB) Long-term IDR has been affirmed at 'A+'. The Outlooks on the Long-term IDRs are Stable. At the same time, Fitch has upgraded AKB's Viability Rating (VR) to 'bbb-' from 'bb+'. A full list of rating actions is at the end of this rating action commentary. The upgrade of AKB's, QIIB's and ABQ's IDRs is driven by a revision of their Support Rating Floors (SRFs), resulting from a change in Fitch's view of the drivers of Qatari sovereign support for domestic banks. Fitch no longer believes that franchise and/or level of government ownership should necessarily lead to a difference in banks' SRFs in the case of Qatar. Fitch expects that there is an extremely high probability that all rated Qatari banks that require support would receive it, irrespective of franchise and ownership, and have therefore equalised all banks' SRFs and IDRs at 'A', except for the flagship bank, QNB. The revision of the SRFs of these three Qatari banks is unrelated to Fitch's global review of the evolving support dynamics for banks. The upgrade of AKB's VR is a result of the bank's strengthened lending franchise and its longer track record of sound performance, supported by its strong capitalisation and sound asset quality. The rating actions follow a periodic review of the Qatari banks. KEY RATING DRIVERS - IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS Qatari banks' IDRs, Support Ratings (SR) and SRFs reflect Fitch's expectation of support from the Qatari authorities for its banks in case of need. Fitch's expectation of support from the authorities reflects Qatar's strong ability to provide support to its banks, 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 including recent years' measures to boost capital as well as asset purchases. 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. 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. RATING SENSITIVITIES - IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS The IDRs, SRs and SRFs are potentially 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. KEY RATING DRIVERS - VRs All Qatari banks' VRs benefit from a stable and supportive operating environment, with the government's significant capital investment program driving rapid GDP growth and lending opportunities for domestic banks. Alongside banks' plans for growth in Qatar,, some are seeking to boost profitability though expansion outside of the country. While improved diversification and increased profitability are positive, most growth is in riskier markets, potentially affecting asset quality and could - if not well managed - pressure certain banks' VRs. 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. Risk appetite is fairly conservative (despite rapid growth and expansion into some riskier 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. CBQ's VR reflects its strong and established franchise in Qatar as the largest private sector bank, solid profitability and still sound asset quality, despite some deterioration. The VR takes into account some weakening in capitalisation and the concentrated debt maturities of the bank's wholesale funding, in addition to high concentration of both loans and deposits. DB's VR reflects its established franchise in Qatar, ability to generate strong and stable profits (one of the strongest among its domestic peers), sound liquidity, and adequate capitalisation. The VR also factors in the bank's sound asset quality, but also 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 as the oldest and largest Islamic bank in Qatar, its strong capitalisation along with sound and improved asset quality. The VR takes into account the bank's sound liquidity, adequate profitability but also concentration of both loans and deposits. AKB's VR reflects its conservative risk management and sound asset quality mitigating its still 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, solid liquidity and its demonstrated ability to grow its lending business according to management's plan. QIIB's VR reflects its high sector and single-name financing concentrations, which increases the risk of fluctuation in asset quality, and its relatively small franchise. The VR also factors in the bank's sound funding profile, with a more diversified funding base than some peers, and solid liquidity. ABQ's VR reflects the bank's satisfactory liquidity and reasonably sound capitalisation and asset quality, a fairly conservative risk appetite but also considers its small franchise and high concentrations on both sides of the balance sheet. RATING SENSITIVITIES - VRs A significant move into higher risk markets increasing QNB's risk profile and negatively affecting its capital position could exert downward pressure on the bank's VR. Given the bank's high VR, upside potential is unlikely. Further weakening of CBQ's capitalisation, or worsening of asset quality, including any negative impact from the bank's Turkish operations, could put pressure on the VR DB's VR is sensitive to any significant weakening of capitalisation and/or asset quality, including from expansion outside of Qatar. QIB's VR would come under pressure following any significant weakening of capitalisation and/or asset quality. Upside potential could arise if the bank continues to strengthen its franchise while maintaining its conservative risk appetite and sound asset quality and capitalisation. Upside potential for AKB's VR would require the bank to continue building its franchise and develop and diversify its earnings, while maintaining sound asset quality. Downward pressure could come from a significant deterioration in asset quality sufficient to affect the bank's capital. QIIB's bank is well managed and upside to the VR could arise if the bank was able to reduce borrower concentrations. A material weakening of asset quality severely affecting profitability and capital - which Fitch considers unlikely - would put downward pressure on the VR. Upside to ABQ's VR could arise if the bank was able to reduce lending concentrations and strengthen its franchise. A material weakening of asset quality severely affecting profitability and capital would put downward pressure on the VR. KEY RATING DRIVERS AND SENSITIVITIES: SPVs 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 '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 upgraded to 'A' from 'A-', Outlook Stable Short Term IDR upgraded to 'F1' from 'F2' Viability Rating affirmed at 'bb+' Support Rating affirmed at '1' Support Rating Floor revised to 'A' QIIB Sukuk Funding Limited Senior unsecured trust certificates Long-Term Rating upgraded to 'A' from 'A-' Al Khaliji Commercial Bank (al khaliji) Q.S.C. Long Term IDR upgraded to 'A' from 'A-', Outlook Stable Short Term IDR upgraded to 'F1' from 'F2' Viability Rating upgraded to 'bbb-' from 'bb+' Support Rating affirmed at '1' Support Rating Floor revised to 'A' AKCB Finance Limited EMTN Programme Senior unsecured notes upgraded to 'A'/ 'F1' from 'A-/F2' Senior unsecured notes (guaranteed by Al Khaliji Bank): upgraded to 'A' from 'A-' Ahli Bank Q.S.C Long Term IDR upgraded to 'A' from 'A-', Outlook Stable Short Term IDR upgraded to 'F1' from 'F2' Viability Rating affirmed at 'bbb-' Support Rating affirmed at '1' Support Rating Floor revised to 'A' Contact: Primary Analyst Laila Sadek Director +44 20 3530 1308 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Karim Soueissi Associate Director +971 4424 1240 Committee Chairperson Jens Hallen Senior Director +44 20 3530 1326 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria, 'Global Financial Institutions Rating Criteria' dated 31 January 2013 is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status null/gws/en/disclosure/solicitation?pr_id=828113 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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