Fitch Ratings has affirmed Qatar Islamic Bank’s (QIB) long-term issuer default rating (IDR) at ‘A’ with a stable outlook and viability rating (VR) at ‘bbb’.
Fitch believes there is an extremely high probability of support from the Qatari authorities, if required, in light of Qatar Islamic Bank’s (QIB) strong domestic franchise and systemic importance. Support is the key rating driver of the IDR and Support Rating. QIB’s good asset quality, strong Tier 1 capitalisation and robust earnings drive the VR, which also considers QIB’s exposure to real estate financing and high financing concentrations.
Any change in the willingness or ability of the state to provide support for the banking system could trigger a rating action. Fitch does not view this as likely at present. Upside pressure for the VR would require QIB to improve its risk management function, diversify its loan book and maintain profitability and asset quality. Downside pressure could arise from a deterioration in asset quality or profit.
Earnings for 1H11 showed signs of growth following subdued net income growth for 2010. 1H 11 net incomes appear to have benefited from investing activities, including holdings of government sukuk, offsetting sluggish income from financing.
QIB’s asset quality ratios compare well with peers as well as internationally. Credit growth in the year to date remained modest following strong growth in 2010 for a number of sectors. Domestic credit growth associated with increased government spending is likely to take time to feed through to the wider economy. Impaired loans/gross loans remained low at 1.7% at end-H111 and compare well with peers.
Real estate is one of QIB’s largest exposures and is also one of its largest credit risks. However, the exposure shows limited signs of asset quality problems and real estate exposure remains comfortably within the QCB’s 150% of equity guidelines.
QIB maintains high levels of capitalisation, comparing well with peers. Capital was boosted again in Q111, following an injection from the Qatar Investment Authority (QIA), which formed part of sector-wide injections.
QIB customer deposits provide the majority of the bank’s funding, which also includes interbank funding. Sukuk funding helps to extend the bank’s funding maturity profile. Despite its leading Islamic franchise position in Qatar, deposits declined in H111, with little sign of inflows from customers moving deposits from conventional banks.
QIB is the third-largest bank in Qatar by assets and the largest Islamic bank accounting for 39% of total Islamic banking assets at end-Q111. The bank has a strong franchise in Qatar and a network of 35 branches. The bank is listed on the Qatar exchange.