TEXT-Fitch affirms Qatar Islamic Bank

Mon Aug 20, 2012 10:17pm IST

(The following statement was released by the rating agency)
       Aug 20 - 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'. A full list of rating actions is at the end of this release.

    

RATING DRIVERS AND SENSITIVITIES - IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR

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.

RATING DRIVERS AND SENSITIVITIES - VR

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.

The rating actions are as follows:

QIB

Long-term IDR affirmed at 'A' with a Stable Outlook
Short-term IDR affirmed at 'F1'
VR 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'

For all of Fitch's Eurozone Crisis commentary go to here

 (Caryn Trokie, New York Ratings Unit)
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