QIB’s IDRs, Support Rating and Support Rating Floor reflect Fitch’s view that there would be an extremely high probability of support from the Qatari Authorities, if needed. The ratings consider the authorities’ strong history of support for the Qatari banking system as well as the strong ability and willingness to support Qatari banks.
A change in Fitch’s view of the willingness or ability of the Qatari authorities to support QIB would be negative for its IDRs and its Support Rating Floor. However, Fitch notes recent supportive actions for the domestic banking sector including pre-emptive capital injections and assets purchases. Given the high level of QIB’s IDRs there is limited upside potential.
Given the structure of Qatar’s economy and the always supportive role of the state behind this, the banks and infrastructure development, Fitch cannot envisage a scenario where the bank’s VR would be above its Support Rating Floor.
QIB’s VR reflects its healthy capitalisation, steady earnings, strong asset quality ratios, solid stock of liquid assets and established franchise in Qatar’s sound operating environment. The VR also considers QIB’s concentrations on both sides of the balance sheet and significant real estate exposure and rising financing/deposit ratio.
QIB’s core earnings showed solid growth in H112, up almost 18% yoy on the back of strong volume growth, which also boosted fee and commission income. Margins remain healthy and relatively stable which Fitch expects to continue for the remainder of 2012. Pre-impairment operating profit also provides capacity to absorb impairment charges which related to losses on financial investments. Fitch expects net income to remain healthy for the rest of 2012 due to increased volume and expects QIB’s franchise to benefit from the introduction by the Qatar authorities of regulation prohibiting commercial banks from carrying out Islamic financing.
QIB’s asset quality ratios compare well with peers. QIB’s past due but not impaired financing were restated to 9.5% of 2010 gross financing or 25.7% of equity which illustrates the risks associated with financing book concentrations and real estate exposures. The same figures for 2011 were much improved due to restructuring. High financing growth in H112 included concentrations to government related entities for projects such as the new port project in Qatar, which mitigates some of the risk.
QIB’s holding of available cash and balances with central banks plus interbank deposits and substantial holding of Qatar government securities provides QIB with a stock of liquid assets.
Customer deposits provide the majority of the bank’s funding although credit growth has outpaced deposit growth and QIB’s financing/ deposit ratio was 108% at end-H112 and end-2011. Although the steady increase in the ratio is becoming an issue for Qatari banks, long-term interbank and sukuk wholesale funding helps to extend QIB’s funding maturity profile and positive market appetite means they are likely to increase to fund future growth.
QIB maintains high levels of capitalisation, comparing well with peers. Risk weighted assets grew sharply in H112 which has reduced QIB’s Tier 1 and Fitch Core Capital ratios. High capital ratios are considered necessary due to QIB’s high concentrations and exposures to real estate.
Downward pressure on the VR could come from a sharp deterioration in QIB’s asset quality, earnings or capitalisation as a result of loan growth outpacing capital retention. Further weakening of the funding profile would also put downward pressure on QIB’s VR. Upside potential for the VR is very limited given it is at a relatively high level for a concentrated franchise.
QIB is the third largest bank in Qatar by assets and the largest Islamic bank accounting for 8.5% of total banking assets and 36% of total Islamic banking assets at end-H112. The bank has a strong franchise in Qatar and a network of 35 branches. QIB has close links with the Qatari government. The bank’s shares are listed on the Qatar Exchange.
Fitch has also affirmed QIB Sukuk Funding Ltd’s senior unsecured debt rating at ‘A’. The rating of the issue is driven solely by Qatar Islamic Bank’s Long-term IDR in view of the purchase undertaking which requires QIB to repurchase the Sukuk assets on the scheduled, or any earlier, dissolution dates. QIB Sukuk Funding Limited is a special purpose vehicle established to act as the issuer and trustee to the certificate holders.