CI affirms QIB rating of ‘A’ with ‘stable’ outlook

Capital Intelligence (CI), the international credit rating agency, has affirmed Qatar Islamic Bank’s (QIB) financial strength rating (FSR) of ‘A’ with a ‘stable’ outlook.However, this outlook continues to be subject to some pressure due to still rather tight liquidity despite the improvement seen in 2017. The FSR is supported by good overall capital adequacy including a strong and improved CET-1 (common equity tier-1) ratio, generally good asset quality, and improved estimated net financing margin and operating profitability, which is underpinned by a low cost base.QIB’s position as the leading Islamic lender in Qatar is also a supporting factor given the demonstrated preference amongst Qataris for personal banking on a Shariah-compliant basis.Encouragingly, QIB now has a liquidity coverage ratio substantially in excess of both current and future regulatory norms and a good net stable funding ratio, the two ratios to which banks in Qatar increasingly manage their liquidity.With other financial metrics generally sound — and in a number of cases very sound — the other main constraint at present is the very significant concentrations in financings by sector and by obligor, and in depositors (although most are governmental on both sides of the balance sheet).The bank’s long- and short-term foreign currency ratings (FCRs) are affirmed at ‘A+’ and ‘A2’, respectively.  Besides reflecting the bank’s generally strong financial profile, these ratings are also supported by the robust growth potential of the economy and ongoing demonstrated government support for Qatari banks.Based on the strength of the Qatari government balance sheet, the support rating is affirmed at ‘2’, CI said.At QIB, a slower pace of asset growth in 2018 (estimated at 7% or less) coupled with funds raised through probable longer-tenor capital markets transactions “should hopefully translate into a better liquidity position”, the rating agency said.Finding that the February 21, 2018 annual general assembly meeting (AGM) confirmed the issue level for perpetual sukuk issuance at QR7.5bn; CI said with the amount of such sukuk already issued standing at QR4bn, “there is considerable room for a further issue.”Considering that the AGM also increased the limit for sukuk issuance from $3bn to $4bn, it said this is important as liquidity is the one area where QIB has sufficient weaknesses that now put some pressure on its current high FSR.