Capital Intelligence (CI), a global credit rating agency, yesterday affirmed the long-term foreign currency rating (LT FCR) and short-term foreign currency rating (ST FCR) of Qatar Islamic Bank (QIB) at ‘A+’ and ‘A1’ respectively.
CI also affirmed QIB’s bank standalone rating (BSR) of ‘a-’, core financial strength (CFS) rating of ‘a-’ and extraordinary support level (ESL) of "high". The outlook for the LT FCR and BSR is "stable".
The bank’s LT FCR is set two notches above the BSR to reflect the high likelihood of official extraordinary support in case of need. This is based on the sovereign's strong track record of support for Qatari banks.
At different points in time such support has included the transfer of ‘difficult investments’ and real estate loans to the state, and the injection of additional equity.
Most recently, all banks were able to rely on a sharp increase in the government deposits to stave off any liquidity pressures, following the Gulf crisis. Moreover, the government has ownership stakes in all Qatari banks. The government’s financial capacity to support the bank is also considered strong given the country's sovereign ratings.
The CFS rating is supported by strong asset quality, strong profitability at both the operating and net levels, and robust capitalisation. Non-financial supporting factors include a strong franchise and market position as the leading Islamic bank in Qatar (and as the second largest bank in the system).
"These strengths are to a limited extent counterbalanced by the high financing exposure to the real estate sector, and by concentrations in both deposits and financings (although these are dominated by the government sector)," CI said.
QIB’s asset quality is solid and stable, while credit loss absorption capacity is strong. The NPF, or non-performing financing, ratio remained moderate over the last six years, and among the lowest of its peer group.
The credit loss absorption capacity is consistently strong, given its very high financing loss reserve coverage, and when capital is included (the extended NPF coverage ratio) it becomes even stronger. Moreover, the historic net NPF accretion rate has tended to be relatively "moderate".
QIB’s profitability is strong and earnings quality is good, with the bank posting consistent results. Its profitability was better than sector average, supported by its broadly stable net financing margins (NFMs), which remained above average, and continued efficiency gains; the cost-to-income ratio remained on a declining trend and reached what is a low level by domestic and international standards.
QIB has a good liquidity profile, largely funded by diversified and stable retail deposits. Its dependence on foreign funding is relatively low and the proportion of non-deposit funding is lower than its peers, CI said.
Moreover, the ‘stickiness’ of the domestic deposit base is a further positive, particularly the public sector component. This gives the bank a competitive edge in the Qatari banking market, which is characterised by relatively tight liquidity ratios and higher reliance on wholesale funds.
QIB maintains robust liquidity buffers, with particularly strong liquidity coverage, liquid assets, and net stable funding ratios. Hence, liquidity risk is considered to be low.
QIB is strongly capitalised and the quality of capital is good. It is better than its peer group in terms of capital ratios in what is a well-capitalised Qatar banking system. In addition, QIB’s total equity to total assets ratio (balance sheet leverage) is also better than its peers.