Baseline credit assessment lowered to baa2 following agreement to acquire a majority stake in Alternatifbank
Limassol, March 27, 2013 -- Moody's Investors Service has today affirmed Commercial Bank of
Qatar's (CBQ) A1 deposit and senior debt ratings, with a stable
outlook. At the same time, Moody's has affirmed the
bank's C- standalone bank financial strength rating (BFSR),
but added that this now maps to a baseline credit assessment (BCA) of
baa2, from baa1 previously.
Today's actions follow CBQ's announcement on 18 March 2013
that is had agreed to acquire a 70.84% stake in Turkey's
Alternatifbank A.S. (unrated) from Anadolu Endustri Holding
A.S, and will subsequently launch a mandatory tender offer
to acquire an additional 4.16% of the bank's share
capital held in the public domain. The acquisition remains subject
to relevant regulatory approval and is likely to be completed in H2 2013.
Although CBQ's baseline credit assessment has been lowered to account
for the impact of the acquisition on the bank's financial fundamentals,
the A1 deposit rating has been affirmed, primarily reflecting Moody's
view that CBQ will continue to benefit from a very high likelihood of
systemic support from the Qatari authorities, in case of need.
The list of ratings affected by today's action is at the end of
this press release.
RATINGS RATIONALE
-- AFFIRMATION OF DEPOSIT AND SENIOR DEBT RATINGS
Moody's affirmation of CBQ's A1 deposit and senior debt ratings
reflects the incorporation of rating uplift based on Moody's assessment
of the very high likelihood of support from the Qatari authorities in
case of need. The rating agency bases its view on (1) CBQ's
importance in the domestic market as the second-largest bank with
a market share of around 10% of assets; (2) the strong willingness
and ability of the Qatari authorities to provide support to local banks;
and (3) the government's direct 16.7% shareholding
in CBQ. These considerations now result in four notches of rating
uplift to A1 from the baa2 baseline credit assessment.
-- LOWERING OF BASELINE CREDIT ASSESSMENT
Moody's decision to lower CBQ's baseline credit assessment
to baa2, from baa1, reflects the rating agency's view
that the geographic diversification benefits from the acquisition of Alternatifbank
are outweighed by (1) the negative immediate impact of the acquisition
on CBQ's core Tier 1 capital levels; (2) integration challenges,
given that Alternatifbank will account for approximately 18% of
CBQ's post-acquisition balance sheet; (3) the risks
arising from CBQ's entry into the Turkish market, which --
despite its growth potential -- carries a higher country
risk relative to Qatar; and (4) Alternatifbank's weaker financial
metrics and franchise strength relative to those of CBQ.
Moody's notes that the consideration to be paid was set at 2x Alternatifbank's
book value as of 30 June 2013 (the book value at 31 December 2012 was
TL585 million ($327 million)). Moody's expects that
the transaction will have an immediate negative impact on the bank's
core Tier 1 ratio of around 300 bps, which will decline to around
12% on a proforma basis from 15.4%, below the
Qatari banking system average of around 18% as of end-2012.
Moody's also notes that in conjunction with integration challenges
-- this is CBQ's largest cross-border acquisition
to date -- the transaction will expose the bank's
creditworthiness to (1) a higher risk economy (Turkey, rated Ba1)
compared to Qatar (rated Aa2, stable); and (2) a dilution of
CBQ's financial metrics, given Alternatifbank's weaker
financial performance. As at end-2012, Alternatifbank
reported a non-performing loan (NPL) ratio of 4.4%
compared to CBQ's 1.1% and its 2012 credit charges
accounted for 3.4% of gross loans compared to 0.3%
for CBQ, while its Tier 1 ratio stood at 9.1% compared
to 15.4% for CBQ. As a point of reference,
as at end-2012 Alternatifbank's loan book and shareholders
equity amounted to TL5.35 billion ($2.99 billion)
and TL601 million ($335 million), respectively, compared
to CBQ's QAR48.6 billion ($13.3 billion) and
QAR14.9 billion ($4.1 billion).
Moody's also recognises, however, that the acquisition --
if successfully completed and managed -- could have positive
medium-term credit implications. Specifically, the
acquisition will give CBQ access to a large and growing market,
positioning CBQ to benefit from the trade links between Turkish and Qatari
companies, and target synergistic benefits with Anadolu group,
which will maintain a 25% stake in the bank.
WHAT WOULD MOVE THE RATINGS DOWN/UP
Downwards pressure on CBQ's ratings could develop if the bank faces
(1) asset-quality pressures beyond Moody's current expectations,
as it expands in the Turkish market; and (2) higher-than-expected
provisioning requirements, which would dampen profitability levels.
Conversely, upwards pressure on the bank's baseline credit assessment
could develop if CBQ reinstates its core Tier 1 ratio to current levels
and also manages to successfully integrate Alternatifbank within the group
and maintain sound financial performances as it expands its operations
in and outside the Qatari market.
LIST OF AFFECTED RATINGS
Commercial Bank of Qatar
- Standalone BFSR of C- affirmed with a stable outlook,
baseline credit assessment lowered to baa2 from baa1
- Long-term local and foreign-currency deposit ratings
of A1, affirmed with a stable outlook
- Short-term local and foreign-currency deposit ratings
of Prime-1, affirmed
- Long-term foreign-currency senior unsecured debt
program rating of (P)A1, affirmed with a stable outlook
- Long-term foreign-currency subordinated debt program
rating of (P)A2, remains on review for possible downgrade
-Short term foreign-currency debt program rating of (P)Prime-1,
affirmed
CBQ Finance Ltd
- Backed long-term foreign-currency senior unsecured
debt ratings of A1, affirmed with a stable outlook
- Backed long-term foreign-currency senior unsecured
debt program rating of (P)A1, affirmed with a stable outlook
- Backed long-term foreign-currency subordinated
debt rating of A2, remains on review for downgrade
- Backed long-term foreign-currency subordinated
debt program rating of (P)A2, remains on review for downgrade
METHODOLOGY USED
The principal methodology used in these ratings was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
Headquartered in Doha, Qatar, CBQ reported total consolidated
assets of QAR80 billion ($22 billion) as of end December 2012,
according to the bank's 2012 financial statements.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Elena Panayiotou
Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Yves J Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms Commercial Bank of Qatar's A1/Prime-1 ratings; outlook stable
