Global credit rating agency Capital Intelligence (CI) has affirmed long-term foreign currency rating (LT FCR) and short-term foreign currency rating (ST FCR) of Qatar Islamic Bank (QIB) at ‘AA-’ and ‘A1+’, respectively.
CI has 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".
QIB's LT FCR is set three notches above the BSR to reflect the high likelihood of official extraordinary support in case of need. This is based on the government’s strong track record of support for Qatari banks and its ownership stakes in all Qatari banks.
The government’s financial capacity to support the bank is also considered to be strong given Qatar’s sovereign ratings.
The lender's BSR is based on a CFS rating of ‘a-’ and an operating environment risk anchor (OPERA) of ‘bbb’. The OPERA for Qatar reflects the country’s very strong external balances, including very high current account surpluses as well as increasing foreign exchange reserves and significantly declining external debt.
It also factors in the substantial volume of state assets under Qatar Investment Authority (QIA) management and Qatar’s very large hydrocarbon reserves.
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 level of financing exposure to the real estate sector and by a degree of concentration in both deposits and financings.
QIB’s asset quality is very good, while credit loss absorption capacity is strong. The non-performing financing (NPF) ratio has remained low over an extended period, and has exhibited rather less volatility than seen at some of its peers, remaining among the lowest in the sector. Credit loss absorption capacity has been consistently strong, while the historic net NPF accretion rate has tended to be low.
Its profitability is strong and earnings quality is good, with the Bank again posting consistently good results. Profitability has been better than the sector average, supported by its broadly stable net financing margins, and a declining cost-to-income ratio – a function of high efficiency. CI expects QIB to continue to post better than average earnings metrics despite its risk-averse business model.
Highlighting that QIB has a good liquidity and funding profile, the agency said it is largely funded by customer deposits, the bulk of which are diversified and relatively stable retail deposit balances.
The bank’s dependence on foreign funding has been relatively low by Qatari banking sector standards and the proportion of non-deposit funding is lower than at most of its peers.
QIB maintains robust liquidity buffers, with particularly strong liquidity metrics. Hence, liquidity risk is considered to be low. QIB’s capitalisation is solid by global standards, and the quality of capital is good.