Fitch Ratings has affirmed Commercial Bank of Qatar’s (CBQ) long-term issuer default rating (IDR) at ‘A’ and short-term IDR at ‘F1′. The outlook on the long-term IDR is stable.
CBQ’s IDRs, Support Rating and Support Rating Floor reflect the extremely high probability of support from the Qatari authorities if needed. Fitch’s view of support is based on the Qatari government’s strong history of support for domestic banks, CBQ’s systemic importance to Qatar’s banking system and the authorities’ direct 16.7% stake in the bank. The Viability Rating (VR) reflects the bank’s established commercial franchise, strong capitalisation and consistently good financial performance. It also considers the bank’s high concentrations on both sides of the balance sheet and significant exposure to real estate.
CBQ’s IDRs are sensitive to changes in Fitch’s assessment of the ability and willingness of the Qatari authorities to support the bank. The VR is sensitive to changes in asset quality and the bank’s capitalisation. While currently comfortable, continuing rapid loan growth in combination with high dividend pay-out ratios, which could constrain the building up of retained earnings, could lead to a decline in capital ratios at the bank. Due to high concentrations in the loan book, a small number of exposures can cause large credit losses.
Fitch expects the prospects for banks in Qatar to remain favourable. Driven by numerous large-scale government-sponsored projects, credit growth in the Qatari banking system should remain robust (credit growth was 32% at end-Q112 yoy) and these projects continue to create sound lending opportunities for banks.
CBQ’s non-performing loans ratio improved to 1.2% at end-Q112 (end-Q111: 3.2%). The improvement was largely driven by writing off fully reserved historical non-performing exposures. The increase in the volume of restructured loans to 22% of Fitch core capital at end-2011 mainly related to two exposures. If the bank were to write off all its restructured (end-2011: QAR3.1bn) and past-due but not impaired exposures (end-2011: QAR0.5bn), the Fitch core capital ratio would still have been a comfortable 15.9% at end-2011, compared with an actual ratio of 23.2%.
Funding sources are diversified by type but customer deposits remain concentrated by single name. While the contractual maturity of deposits is short, the behavioural stickiness has proven to be high. The bank has successfully managed to extend its funding profile by tapping the wholesale capital markets. CBQ completed its latest USD500m, five-year senior unsecured bond issuance in April 2012.