By Santhosh V Perumal/Business Reporter
Capital Intelligence Ratings (CI), a global credit rating agency, has affirmed Qatar Islamic Bank’s (QIB) financial strength rating (FSR) at ‘A’ and long and short-term foreign currency ratings at ‘A’ and ‘A2’ respectively.
The ratings reflect the QIB’s intrinsic financial profile, the robust growth potential of the economy 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’.
Although the outlook on all ratings is maintained at ‘stable’; CI said this is beginning to come under considerable pressure due to tight liquidity.
The FSR is not only supported by good asset quality, still good profitability, and a more-than-satisfactory total capital adequacy ratio but also by its leadership role in the Islamic banking, which is growing faster than the conventional ones domestically.
“While this is a potential positive, the rate of growth in financings over 2014-15 has been very high, especially in the context of an economy where growth is likely to slow,” it said.
Terming tightening liquidity as a constraint to rating; CI said while some liquidity ratios may have improved in 2014, all liquidity measures tightened in 2015, with particular concern on the now very tight net liquid asset ratio.
Although other financial metrics are generally sound, the other main constraints are the “very significant” concentrations in financings by sector and by obligor, in depositors and in the form of the uncertainties around economic growth and therefore the likely trajectory of credit growth.
“Looking ahead, CET-1 (common equity Tier 1) capital may be an area that may move towards the constraining side of the ledger,” CI said.
Although dividend restraint has begun to improve internal capital generation, the rate is still low in global terms, while the growth of both the balance sheet and contingents have been very strong in 2014 and 2015, it found.
While Tier 1 ratios have been sustained by AT-1 (additional Tier 1) issues (which have also aided funding and overall liquidity), CET-1 has lagged, CI said, adding although the bank’s annual general meeting in February approved an increase in additional sukuk to QR3bn, QIB has indicated that there are currently no plans for such an issue.
Highlighting that economic conditions in Qatar are expected to remain better than most other Gulf countries and support modest credit growth in 2016; CI said QIB also expects credit to grow, but at a rather slower pace than seen in 2014-15; perhaps 9% or less.
Stressing that a slower pace of asset growth in 2016 should hopefully translate into a better liquidity position; it said this is important as liquidity is the one area where QIB has “sufficient weaknesses” that now threaten its current high ratings.
While the declared dividend for 2015 is unchanged on 2014 at QR4.25 per share (the number of shares in issue is unchanged), net profit grew by almost 22%. Accordingly, the payout ratio again declined, and as a result the rate of internal capital generation improved.
Assuming a further rise in net profit and restraint on dividends by keeping the dividend per share unchanged, the payout ratio should decline further while that for internal capital generation rises, according to CI.
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