Doha Bank Q P S C : Fitch Affirms Doha Bank at ‘A’, Outlook Stable

Fitch Affirms Doha Bank at 'A', Outlook Stable

Fitch Ratings has affirmed the Doha Bank's IDRs, Support Rating (SR) and Support Rating Floor (SRF) with Stable Outlook and it reflect Fitch's expectation of an extremely high probability of support from the Qatari authorities for domestic banks in case of need. This reflects the strong ability of Qatar to support its banks, as indicated by its rating (AA-/Stable), combined with Fitch's belief of a strong willingness to support the banking sector and the bank.

The government and the Qatar Central Bank have extended a QAR75 billion stimulus package (10% of GDP), which includes a zero-cost QAR50 billion repo facility for banks to provide credit extensions, of both principal and interest to borrowers affected by the pandemic, until 15 June 2021. As part of the stimulus, Qatar Development Bank (QDB) launched a QAR3 billion national guarantee programme that provides guarantees at subsidized rates to local banks against loans extended to SMEs affected by the pandemic.

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DB has a well-established and adequate franchise in Qatar. It accounted for about 6% of the sector's lending and deposits at end-9M20 and has the second largest conventional branch network. Doha Bank's 'A' SRF is at the same level as other Qatari domestic systemically important banks' (D-SIB) SRFs. The bank's standalone creditworthiness is underpinned by a well-established domestic franchise in Qatar and a strategy to de-risk and consolidate its financial profile in the medium term. Fitch notes that the Bank's revised strategy is to prioritize asset-quality improvement through tightened underwriting standards, including growing government lending, a reduction in construction and real-estate exposures, cost optimization and core capital strengthening. It now has a conservative approach to loan growth (9M20: minus 5%). DB is focused on consolidating its financial profile in the short term. It is likely to grow only moderately over the rating horizon, although it aims to maintain its established market position. The bank will prioritize asset-quality improvement through tightened risk controls (regarding its weaker GCC operations and a reduction in high-risk construction and real estate exposures) and active loan monitoring. It also plans to optimize costs, maintain its net interest margin in line with peers and strengthen its core capitalization.

The Rating Agency notes the bank's de-risking plan may prove challenging in the short to medium term given the effects of the pandemic, below-trend growth outlook in Qatar in 2020-2021 and lower hydrocarbon prices that will weigh on the government's capital spending. The management team has a good degree of credibility and experience and knowledge of the local market. Corporate governance practices are sound, underpinned by effective board oversight.

Dr. Seetharaman mentioned that we will continue to focus on De-Risking the operations and implementing the 5R's (Remedial Management, Restructuring of loans, Revenue Enhancement, Rationalization of cost and Remodeling the business) and we are seeing notable improvements in core capital and maintenance of NPL ratio with good coverage and revised strategy is to prioritize asset-quality improvement through tightened underwriting standards, including growing higher-quality government lending, a reduction in high-risk construction and real-estate exposures, cost optimization and core capital strengthening. He concluded that given the challenges imposed by COVID19, the affirmation of Ratings and Stable Outlook reinforces the 5R strategy is yielding results and integrates well with excellent economic management by State of Qatar.