Global credit rating agency, Capital Intelligence (CI) has affirmed Doha Bank’s financial strength rating (FSR) at ‘A’ with “stable” outlook owing to the lender’s good capital base and overall asset quality.
Based on the strong Qatari government balance sheet, the significant stake of the Qatar Holding and the strong record of sovereign systemic support for banks, CI said the support rating of Doha Bank is affirmed at ‘2’.
Reflecting this support and the improved outlook on Qatar’s long-term foreign currency rating (FCR) of ‘AA-’/’stable’, the bank’s long-term FCR is upgraded to ‘A+’. The short-term FCR is affirmed at ‘A2’ with “stable” outlook.
In terms of the balance sheet, CI expects 2017 to see stronger capital ratios and an easing of liquidity, especially as loan growth is expected to be “moderate”.
The FSR is also supported by the bank’s specialist franchise in Qatar, the business potential of its new Indian operations as well as by its still sound profitability despite the revenue fall in 2015 and 2016.
However, the FSR remains constrained by still tight liquidity, a high concentration level in the customer deposits, low internal capital generation (albeit the current rights issue makes it much less of a concern) and the overall uncertainties on the potential medium-term impact on the Qatari banking system due to a prolonged period of low hydrocarbon prices, it said.
Nevertheless, Doha Bank – the third largest conventional lender in Qatar – has strong liquidity coverage ratio, CI said, adding “for 2017, the rights issue will bring some immediate easing to liquidity, while planned debt issuance later this year should provide further improvement.”
While retail banking had been its traditional strength, the scope for further volume growth in it is limited in Qatar, given the competition (especially from Islamic banks) and the underlying demographics, CI said.
Finding that the bank has already lower appetite for high-risk sectors as contract financing and realty, despite opportunities to grow domestic corporate loans, CI said it is therefore probable that an increasing proportion of future asset growth will come from overseas business.
On the liability side, the lender expects more funding to come from euro medium-term notes, bilateral long-term arrangements with overseas banks and placements by global corporates and institutions, it said, adding to improve liquidity, an increasing proportion of funds raised would be deployed into high quality and very liquid investments.
The bank’s international network continues to be leveraged to support local and international business in general and remittances and trade finance in particular, CI said. Although performance was dull in 2016, non-interest revenue is expected to recover this year, with Indian and Bangladeshi businesses providing additional momentum, it added.
With domestic loan growth likely to be constrained, raising overall revenues from Qatar itself would depend increasingly on non-interest income, it said; adding fee and commission earnings should rebound after the minor setbacks in the last two years.
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