Fitch Affirms 6 Qatari Banks at ‘A+’; Affirms QNB at ‘AA-‘

The following is from Fitch Ratings on April 27:

Fitch Ratings has affirmed the Long-term Issuer Default Ratings (IDR) of Commercial Bank of Qatar (CBQ), Doha Bank (DB), Qatar Islamic Bank (QIB), Al Khalij Commercial Bank (al khaliji) Q.S.C. (AKB), Qatar International Islamic Bank (QIIB) and Ahli Bank QSC (ABQ) at 'A+'.

Fitch has also affirmed Qatar National Bank's (QNB) Long-term IDR at 'AA-'. The Outlooks on all the Long-term IDRs are Stable.

KEY RATING DRIVERS - IDRS, SRs, SRFs AND SENIOR DEBT

Qatari banks' IDRs, Support Ratings (SR) and Support Rating Floors (SRFs) reflect Fitch's expectation of support from the Qatari authorities for domestic banks in case of need. Fitch's expectation of support from the authorities reflects Qatar's strong ability to provide support to its banks, as indicated by its rating, combined with Fitch's belief that there would be a strong willingness to do so. The latter is based on a history of sovereign support including recent years' measures to boost capital as well as asset purchases.

The government has demonstrated strong commitment to its banks and key public-sector companies and we expect this to continue despite the effects of lower oil prices. The government owns stakes in Qatari banks following capital injections into the banking system between 2009 and 1Q11. Additional supportive actions taken by the Qatari authorities included direct asset purchases (both loans and equities) in 2009. The sovereign's capacity to support the banking system is sustained by its sovereign wealth funds and on-going revenues, mostly from its hydrocarbon production.

Fitch does not believe that franchise and/or level of government ownership should necessarily lead to a difference in banks' SRFs in the case of Qatar. Fitch expects that there is an extremely high probability that all rated Qatari banks that require support would receive it, irrespective of franchise and ownership, and therefore equalises all banks' SRFs and IDRs at 'A+', except for the flagship bank, QNB.

Fitch makes a distinction between QNB's SRF and that of the other banks in Qatar as a result of its status as the flagship bank in the sector, its role in the Qatari banking sector and close business links with the state.

The Stable Outlooks reflect the Outlook on the Qatari sovereign.

RATING SENSITIVITIES - IDRS, SRs, SRFs AND SENIOR DEBT

The IDRs, SRs and SRFs are potentially sensitive to a change in Fitch's assumptions around the Qatari authorities' propensity or ability to provide timely support to the banking sector. At present Fitch considers the likelihood of any change to be small.

KEY RATING DRIVERS - VRs

All Qatari banks' Viability Ratings (VRs) benefit from a stable and supportive operating environment, with the government's significant capital investment program driving rapid GDP growth and lending opportunities for domestic banks. High levels of investment and a rapidly expanding population (up by 9.5 percent year on year in March 2015) are driving strong economic growth. Real GDP growth was 6.2 percent in 2014, with the non-hydrocarbon sector rising by 11 percent, the quickest rate since 2009. Construction was the fastest growth sector, expanding by 18 percent, with finance and trade also growing by over 12 percent. Project momentum will remain strong, keeping non-hydrocarbon growth close to double digits, though limited capacity in the local private sector dampens the impact on the economy. The accompanying increase in the workforce will add to GDP growth.

QNB's VR reflects its dominant franchise in Qatar, close links to the Qatari government, strong funding profile with sound liquidity and solid capital position. Profitability is stronger than that of most peers. Risk appetite is fairly conservative (despite rapid growth and expansion into some riskier markets). High loan and deposit concentrations, which would otherwise constrain the rating, are mitigated by QNB's largest borrowers and depositors being primarily lower risk Qatari government related entities.

CBQ's VR reflects its strong and established franchise in Qatar as the largest private sector bank, solid profitability and still sound asset quality, despite CBQ's rising exposure to Turkey and rapid growth there, which increases the bank's risk profile. However, growth in Turkey has so far been handled well and the Turkish subsidiary is showing improvement in most metrics. The VR also takes into account capitalisation that is adequate, but on the low side compared with most domestic peers, although we understand CBQ intends to raise capital in 2015. The VR also reflects high concentration of both loans and deposits, although lending is more diversified than that of many peers.

DB's VR reflects its established franchise in Qatar, solid profitability despite some weakening as a result of margin pressure, its relatively diversified funding franchise and its capitalisation which is adequate but on the low side when compared with peers. However, Fitch understands DB intends to raise capital in 1H15. The VR also factors in asset quality that is stable but with an impaired loan ratio slightly higher than most peers, and an expansion strategy which, while well managed so far, could lead to increased risks. The VR takes into account concentration on both sides of the balance sheet, although concentration levels are lower than those of peers.

QIB's VR reflects the bank's established franchise in Qatar, its sound and improved asset quality, and its solid funding franchise that is more diversified than that of most peers. The VR also takes into account the bank's sound liquidity and adequate profitability, but also concentration of both loans and deposits, although deposits are less concentrated than those of peers and include a strong retail component.

AKB's VR reflects its conservative risk management and sound asset quality mitigating its still relatively small franchise and undiversified business model, with concentrations on both sides of the balance sheet. The VR also factors in the bank's sound - though weakening - capitalisation in light of its rapid asset growth, sound liquidity and its demonstrated ability to grow its lending business according to management's plan. The bank's profitability remains weaker than most domestic peers.

QIIB's VR reflects its high sector- and single-name financing concentrations, which increases the risk of fluctuation in asset quality, and its relatively small franchise. The VR also factors in the bank's sound funding profile, with a more diversified funding base than some peers, its sound capitalisation despite some weakening, and its sound liquidity.

ABQ's VR reflects the bank's strong profit generating capacity with profitability ratios comparing well with peers, its satisfactory liquidity and sound asset quality. The VR takes into account ABQ's conservative risk appetite but also its small franchise and high concentrations on both sides of the balance sheet. Capital ratios are solid and compare well with peers, but Fitch considers a high level of capital to be necessary in view of the above-average loan book concentration.

RATING SENSITIVITIES - VRs

A significant move into higher risk markets increasing QNB's risk profile and negatively affecting its capital position could exert downward pressure on the bank's VR. Given the bank's high VR, upside potential is unlikely.

CBQ's VR is sensitive to the increased risks from its Turkish subsidiary, especially the bank's plans for rapid expansion in Turkey. Fitch expects CBQ to manage its expansion in Turkey well, with continued improvement in the Turkish subsidiary's performance and asset quality. However, a negative impact from the bank's Turkish operations, if it does occur, could put pressure on the VR. CBQ's VR is also sensitive to weakening capitalisation, or worsening of asset quality in its domestic market.

DB's VR is sensitive to any significant weakening of capitalisation and/or asset quality, including from expansion outside of Qatar.

Upside potential for QIB's VR could arise if the bank continues to strengthen its franchise while maintaining its conservative risk appetite and sound asset quality and capitalisation. The VR would come under pressure following any significant weakening of capitalisation and/or asset quality.

AKB's VR is sensitive to a significant deterioration in asset quality sufficient to affect the bank's capital. Upside potential would require the bank to continue building its franchise and develop and diversify its earnings, while maintaining sound capitalisation and asset quality.

Upside to QIIB's VR could arise if the bank was able to reduce borrower concentrations, which are the main constraint to the VR. A material weakening of asset quality severely affecting profitability and capital - which Fitch considers unlikely - would put downward pressure on the VR.

Upside to ABQ's VR could arise if the bank was able to reduce lending concentrations and continue to strengthen its franchise. A material weakening of asset quality severely affecting profitability and capital would put downward pressure on the VR.

KEY RATING DRIVERS AND SENSITIVITIES: SPVs

The ratings of the debt issued by the SPVs, listed below, are in line with the parents' Long-Term and/or Short-Term IDRs and are sensitive to any change in the parents' IDRs.

The rating actions are as follows:

Qatar National Bank

Long Term IDR affirmed at 'AA-', Outlook Stable

Short Term IDR affirmed at 'F1+'

Viability Rating affirmed at 'a'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'AA-'

Senior unsecured notes affirmed at 'AA-'

QNB Finance Ltd

EMTN Programme Senior unsecured notes affirmed at 'AA-'/'F1+'

Senior Unsecured Notes (guaranteed by QNB) affirmed at 'AA-'

Commercial Bank of Qatar

Long Term IDR affirmed at 'A+', Outlook Stable

Short Term IDR affirmed at 'F1'

Viability Rating affirmed at 'bbb'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'A+'

Qatar Islamic Bank

Long Term IDR affirmed at 'A+', Outlook Stable

Short Term IDR affirmed at 'F1'

Viability Rating 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+'

QIB Sukuk Ltd

Trust certificate issuance programme affirmed at 'A+'

Senior unsecured trust certificates Long-Term Rating affirmed at 'A+'

Doha Bank

Long Term IDR affirmed at 'A+', Outlook Stable

Short Term IDR affirmed at 'F1'

Viability Rating affirmed at 'bbb'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'A+'

Doha Finance Limited

EMTN Programme Senior unsecured notes affirmed at 'A+'/ 'F1'

Senior unsecured notes (guaranteed by Doha Bank): affirmed at 'A+'

Qatar International Islamic Bank

Long Term IDR affirmed at 'A+', Outlook Stable

Short Term IDR affirmed at 'F1'

Viability Rating affirmed at 'bb+'

Support Rating affirmed at '1'

Support Rating affirmed at 'A+'

QIIB Sukuk Funding Limited

Senior unsecured trust certificates Long-Term Rating affirmed at 'A+'

Al Khalij Commercial Bank (al khaliji) Q.S.C.

Long Term IDR affirmed at 'A+', Outlook Stable

Short Term IDR affirmed at 'F1'

Viability Rating affirmed at 'bbb-'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'A+'

AKCB Finance Limited

EMTN Programme Senior unsecured notes affirmed at 'A+'/ 'F1'

Senior unsecured notes (guaranteed by Al Khalij Commercial Bank (al khaliji) Q.S.C.): affirmed at 'A+'

Ahli Bank Q.S.C

Long Term IDR affirmed at 'A+', Outlook Stable

Short Term IDR affirmed at 'F1'

Viability Rating affirmed at 'bbb-'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'A+'

Additional information is available on fitchratings.com

Applicable criteria, Global Banks Rating Criteria are available at fitchratings.com.

Applicable Criteria and Related Research:

Global Bank Rating Criteria

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=819048

Additional Disclosure

Solicitation Status

http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=983682

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