Fitch Ratings has affirmed
Key Rating Drivers
The 'bb' VR reflects the bank's high-risk profile with a historical focus on lending to sensitive sectors, which has exacerbated asset-quality problems, and below peers' performance metrics that are weighed down by increased cost of risk. The VR also captures a high reliance on wholesale and external funding (including deposits) as well as reasonable liquidity and capitalisation metrics.
Government Support Rating (GSR) of 'a-':The Qatari authorities have a strong propensity to support domestic banks, irrespective of their size or ownership. They also have a strong ability to do so, as indicated by the sovereign rating ('AA-'/Stable) and substantial net foreign assets and revenue, albeit weakened by the Qatari banking sector's high reliance on external funding and recent rapid asset growth.
Strengthened Operating Environment: High hydrocarbon prices have supported the strengthening of the operating environment for Qatari banks. The 2022 FIFA World Cup and higher private-sector demand from the improving business sentiment also underpin this trend.
High Exposure to Vulnerable Sectors:
Still High Problem Loans:
Lower Loan Impairment Charges:
Moderate Capitalisation:
High External Liabilities: The bank's loans/deposits of 120% is at the higher end of the sector's, reflecting its high reliance on wholesale funding (35% of total funding at end-1H22), while the regulatory ratio was lower at 102% at the same date. Similar to other Qatari banks,
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of the sovereign or a negative change in Fitch's assessment of the government's propensity to provide support to Qatari banks in general or to
Material deterioration of asset-quality metrics (ie as a result of migration of Stage 2 loans into the Stage 3 category), resulting in a significant increase of capital encumbrance, could lead to a VR downgrade. Inability to refinance wholesale funding or outflows of overseas deposits may lead to a downgrade of IDR and VR if not compensated by liquidity support from the authorities.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The VR could be upgraded if the bank executes its de-risking strategy with a higher share of lending to state-related entities and a lower share of loans to the higher-risk contracting and real estate sectors. A lower Stage 2 loans ratio (below 10%) with impaired loans stabilising at about 6% of total loans and a CET1 ratio above 13% could lead to a VR upgrade.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The ratings of senior debt issued by
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The notes issued by
VR ADJUSTMENTS
The operating environment score of 'bbb' is below the 'aa' category implied score due to the following adjustment reasons: size and structure of economy (negative), financial market development (negative) and regulatory and legal framework (negative).
The funding and liquidity score of 'bb' is below the 'bbb' category implied score due to the following adjustment reason: deposit structure (negative).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The Long-Term IDR of
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
(C) 2022 Electronic News Publishing, source