Global Arab Network | Fitch: Commercial Bank of Qatar ratings reflect strong credit fundamentals

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Fitch: Commercial Bank of Qatar ratings reflect strong credit fundamentals

Posted by Mohammed Almasri

Tuesday, 09 March 2010 15:15

Fitch Ratings has today affirmed the Commercial Bank of Qatar's (CBQ) Long-term Issuer Default Rating (IDR) at 'A', Short-term IDR at 'F1', Individual Rating at 'C' and Support Rating at '1'. The Support Rating Floor is affirmed at 'A'. The Outlook on the Long-term IDR is Stable.

CBQ's IDRs are support-driven, reflecting Qatar's strong credit fundamentals and the extremely high probability of external support available to the bank from the Qatari authorities in case of need. Fitch's view of support is based on CBQ's systemic importance as Qatar's second-largest lender/deposit taker and the authorities recent support measures.

The Individual Rating of 'C' reflects CBQ's strong corporate banking franchise and growing presence in retail banking, credit cards and Islamic finance as well as strategic stakes in National Bank of Oman (35%) and UAE-based United Arab Bank (40%).

The Individual Rating also captures CBQ's track record of consistently good results and the loss absorption capacity from strong and sustainable core earnings. Capital is also strong with CBQ issuing USD600m of subordinated notes in Q409 and Qatar Holding raising its stake to 9.1% by end-2009.

Asset quality deteriorated somewhat with NPLs (on a 180+ days overdue basis) rising to 2.2% of gross loans in 2009, although this was due to several isolated cases. However, the rise in past due loans and to a lesser extent restructured loans could point to weaker asset quality trends ahead. On a 90+ day classification, which is used by the bank's peers, its NPL ratio would rise to 3.2% of gross loans which is on the high-side for Qatar.

CBQ de-risked its loan and investment portfolios following the sale of assets to the government as part of Qatar's banking support measures.

Liquidity is satisfactory; however, Fitch's calculated loans/deposit ratio of 124% at end-2009 is high and could pose a problem in a severe stress scenario. Risk is mitigated by a stable deposit base, substantial liquid assets and good access to wholesale funding - as demonstrated in 2009 when CBQ issued USD1.6bn of notes in Q409 (USD1bn of senior notes and USD600m of subordinated notes) despite lower market sentiment for regional banks. In addition, CBQ has QAR8bn of investments in Qatar government bonds and CDs which can be used for repo if necessary.

The bank reported a net profit of QAR1.5bn for 2009, a decline of 11% y-o-y, mainly due to rising loan losses during the year.

Established in 1975, CBQ is Qatar's second-largest bank (14% share of assets). The bank is 9.1% owned by Qatar Holding (a sovereign wealth fund) and 28% by its founding shareholders (a group of Qatari merchants). CBQ is listed on the Qatar Exchange and its GDRs are listed on the London Stock Exchange.

A report on this entity will be available shortly on the agency's website, www.fitchratings.com under Financial Institutions/Banks/Full Rating Reports.

In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual ratings and the prospect of external support is reflected in Fitch's Support ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs.

Global Arab Network