Qatar Islamic Bank Financial Strength Rating Affirmed On ‘A’; Negative Outlook
Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed Qatar Islamic Bank’s (QIB’s) Financial Strength Rating (FSR) of ‘A’, which reflects the Bank’s overall strong credit metrics, a robust operating environment and QIB’s franchise as the leading Islamic bank in Qatar.
Notwithstanding substantial consolidation of the Bank’s core business activities last year, a ‘Negative’ Outlook is assigned to the FSR, in view of the continued decline in the Bank’s profitability over the past three years.
Unless there is a clear reversal of this trend, or if there is renewed slippage in financing asset quality or further substantial impairment of investment assets, it is very likely that the FSR would be revised downward in the next review.
The Bank’s Long and Short-Term Foreign Currency Ratings are also affirmed at ‘A’ and ‘A2’, respectively, on ‘Stable’ Outlook, due to the Bank’s intrinsic financial profile and ongoing government support for all Qatari banks. Based on the strength of the Qatari government balance sheet, the Support rating is affirmed at ‘2’.
The ratings are primarily supported by QIB’s strong capital adequacy. The last tranche of an equity increase subscribed by the Qatar Investment Authority (QIA), together with tightly controlled growth in risk weighted assets, combined to produce a further increase in the Bank’s capital adequacy ratio.
Financing asset quality also reverted to a much better level, and one in consonance with the Bank’s overall credit profile, following a sharp reduction in past due not impaired facilities from their level of end 2010. The Bank’s substantial franchise also provides considerable support to the ratings.
The ratings are constrained by the continued decline in return on average total assets. Despite an improved profit sharing differential, in the past year net profit was impacted by a rise in costs following integration of the Bank’s investment banking subsidiary and impairments on financial investments.
The ratings are also constrained by substantial tightening in the net financing facilities to customer deposits ratio and the Bank’s greater dependence on interbank funding.
High borrower concentration and the Bank’s high exposure to housing finance, as well as to real estate through subsidiaries and associates, are also constraining factors.
QIB was the first Islamic banking institution to be incorporated in Qatar in 1982. At end 2011, the Bank’s single largest shareholder was the QIA with 16.67%.
With total assets of $16bn at end 2011, QIB is the third largest bank in the Qatari market and operates one of the largest banking networks, consisting of 35 branches.
The Bank provides a full range of Islamic investment and financing services through various sharia compliant products for both corporate and retail clients.
As a specialized project finance institution, QIB is involved in financing projects most notably in the infrastructure, oil and gas, and property development sectors, many of which are closely related to Qatar’s economic development.
QIB is also considered to be a major player regarding the issuance of sukuk in Qatar and internationally, through its affiliates in London and Malaysia.
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