Limassol, July 05, 2017 -- Moody's Investors Service, ("Moody's") has
today affirmed the long-term ratings of all of the 10 banks it
rates in Qatar. Moody's also affirmed the banks' baseline
credit assessments (BCA), adjusted BCAs and Counterparty Risk Assessments
(CRA)s. At the same time, the rating agency changed the outlook
to negative from stable for nine banks and maintained the negative outlook
on one bank.
The rating actions were driven by 1) the weakening domestic operating
environment, particularly for banking funding, resulting in
the rating agency lowering the Macro Profile it assigns to Qatar to Moderate+
from Strong--; and 2) the weakening capacity of the Qatar government
to support the country's banks, as indicated by Moody's
change in outlook for the Qatari government's Aa3 government bond
rating to negative from stable on July 04 (for details please refer to
the press release: https://www.moodys.com/research/--PR_368471).
Details of the rationales for individual bank rating actions are provided
later in this press release.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_196398
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Principal Methodology
• Local Market Analyst
RATINGS RATIONALE
RATING AFFIRMATIONS
Moody's decision to affirm the ratings of all 10 banks reflects
the resilience in their financial performance underpinned by continued
strong asset quality and capital buffers. Despite challenges emerging
from the ongoing dispute between Qatar and a group of peer countries,
including its fellow Gulf Cooperation Council (GCC) neighbors Bahrain
(Ba2 negative), Saudi Arabia (A1 stable) and the United Arab Emirates
(UAE, Aa2 stable) the banks' liquidity buffers remain solid.
OUTLOOK CHANGED TO NEGATIVE
At the same time, Moody's decision to change the outlook to
negative from stable on the long-term ratings of nine banks reflects
Moody's expectations that a prolongation of the current dispute
could lead to some outflows of external funding, which would reduce
the banks' liquidity buffers while domestic funding sources remain
tight due to current oil prices. At the same time, Moody's
expects funding costs to rise, dampening banks' profitability.
Additionally, the negative outlook also captures the weakening capacity
of the government of Qatar to provide support in case of need, as
implied by the negative outlook on the Aa3 government bond rating.
The affected institutions are Qatar National Bank (Q.P.S.C.),
Doha Bank Q.S.C., Al Khalij Commercial Bank
(al khaliji) P.Q.S.C., Ahli Bank Q.S.C.,
Barwa Bank Q.S.C., International Bank of Qatar
(Q.S.C.), Masraf Al Rayan (Q.S.C.),
Qatar International Islamic Bank (Q.S.C.) and Qatar
Islamic Bank Q.P.S.C..
MAINTAINED NEGATIVE OUTLOOK
Moody's has maintained the negative outlook on the long-term deposit
ratings of The Commercial Bank (P.S.Q.C.)
('Commercial Bank'). The existing negative outlook was driven by
Moody's expectation of pressures on the bank's solvency, arising
from asset quality deterioration and the weakening of profitability owing
to higher loan loss charges and a lower contribution from Commercial Bank's
Turkish subsidiary and UAE based associate. Additional pressure
is now exerted on the bank's ratings due to the challenges in the
operating environment and the negative outlook for the Qatar government
rating, similarly to the other Qatari banks rated by Moody's.
WEAKENING DOMESTIC OPERATING ENVIRONMENT AFFECTING STANDALONE CREDIT PROFILES
A key driver of the negative outlook of the Qatari banks' ratings
is the downside risk that a prolongation of the current regional dispute
could trigger some outflows of external funding (which represents around
36% of total banking system liabilities as of May 2017) and a generalized
increase in the cost of funding. As a result, the banks'
liquidity buffers would likely reduce, as domestic funding sources
remain tight due to current oil prices. This could negatively impact
the supply of credit and weaken economic growth. Consequently,
this could increase asset quality pressures and provisioning charges on
the banks over the coming quarters. A combination of these factors,
could result in lower profits for Qatari banks. Moody's has
captured these risks by lowering its macro profile for Qatar to Moderate+
from Strong-.
WEAKENING GOVERNMENT CREDITWORTHINESS AFFECTS CAPACITY TO SUPPORT
Although Moody's continues to incorporate a very high probability
of government support for the long-term issuer and deposit ratings
of the Qatari banks, the change in their outlook is also driven
by the change in outlook to negative from stable on the Aa3 Qatar government
bond rating. This reflects the potential weakening of the government's
capacity to provide support to banks in case of need. Moody's
very high probability of support for the banks in Qatar is driven by the
government's shareholding in the banks, the importance of
the banking system to the country's economy and past track record
of pre-emptively supporting banks in 2009-2010.
INDIVIDUAL BANKS
QATAR NATIONAL BANK (QNB)
The key drivers for the affirmation of QNB's Aa3 long-term
deposit ratings are Moody's (1) affirmation of the bank's
baa1 BCA, and (2) view of a continued very high likelihood of Qatari
government support, which continues to translate into four notches
of uplift from its baa1 BCA. The change in outlook to negative
from stable reflects both pressure on the bank's standalone credit
profile and the change in outlook on the sovereign rating.
QNB's standalone profile is expected to come under pressure owing
to the challenges in the operating environment, which are likely
to reduce its liquidity buffers. Amongst the domestic banks,
QNB has the highest level of external funding (around 49% of its
total liabilities on a consolidated basis), which in the event the
dispute becomes prolonged could lead to some outflows of external funding,
while domestic liquidity conditions remain tight. This would also
dampen the bank's strong profitability due to higher funding costs.
The BCA also captures the bank's dominant domestic franchise with
strong linkages to the government, which underpins its solid solvency
position and is a key driver for the BCA affirmation.
QATAR ISLAMIC BANK (QIB)
The key drivers for the affirmation of QIB's A1 deposit ratings
are Moody's (1) affirmation of the bank's baa2 BCA and (2)
view of a continued very high likelihood of Qatari government support,
which continues to translate into four notches of uplift from its baa2
BCA. The change in outlook to negative from stable reflects both
the pressure on the bank's standalone credit profile and the change
in outlook on the sovereign rating.
The rating agency expects QIB's standalone profile to come under
pressure owing to its reliance on external funding, at 27%
of its total assets as of December 2016, including sizable funding
from the GCC countries (20% of its total assets). Should
the dispute become prolonged, this could result in some outflows
of external funding, while domestic liquidity conditions remain
tight. These challenges are expected to lower the profitability
of the bank as funding costs rise. Nevertheless, the BCA
also captures the bank's well established and expanding retail and
corporate Islamic banking franchise, which supports its overall
solvency profile and is a key driver for the BCA affirmation.
DOHA BANK (DHBK)
The key drivers for the affirmation of DHBK's A2 deposit ratings
are Moody's (1) affirmation of the bank's baa3 BCA and (2)
view of a continued very high likelihood of Qatari government support,
which continues to translate into four notches of uplift from its baa3
BCA. The change in outlook to negative from stable reflects both
the pressure on the bank's standalone credit profile and the change
in outlook on the sovereign rating.
Moody's expects DHBK's BCA to come under pressure due to the
challenges in the operating environment, which are expected to reduce
its liquidity buffers. The bank's market funding -
which stands at 24% of total assets as of March 2017 (up from 21%
as of December 2016) -could see some outflows in the event the
dispute becomes prolonged, while domestic liquidity conditions remain
tight. At the same time, the bank's profitability (as
measured by net income to total assets), which recovered in 2017
after declining to 0.9% for 2016, due to higher provisioning
costs, will likely face renewed pressure from a rise in funding
costs. Nevertheless, the bank's solvency profile remains
solid, underpinned by the recent capital increase from a QAR1.3
billion rights issue.
MASRAF AL RAYAN (Masraf)
The key drivers for the affirmation of Masraf's A1 issuer ratings
are Moody's (1) affirmation of the bank's baa2 BCA and (2)
view of a continued very high likelihood of Qatari government support
which continues to translate into four notches of uplift from its baa2
BCA. The change in outlook to negative from stable reflects both
the pressure on the bank's standalone credit profile and the change
in outlook on the sovereign rating.
Masraf's standalone profile remains underpinned by its solid solvency
profile. However, this is expected to come under pressure
owing to the challenges in the operating environment, which could
reduce its liquidity buffers. The bank's reliance on external
funding was around 14% of total assets as of December 2016.
Although lower than some of its Qatari peers, the level has increased
since then, and in the event the dispute prolongs there could be
some outflows, while domestic liquidity conditions remain tight.
In line with other Qatari banks, Moody's expects that MASRAF's
profitability will soften as a result of a rise in funding costs.
QATAR INTERNATIONAL ISLAMIC BANK (QIIB)
The key drivers for the affirmation of QIIB's A2 issuer ratings
are Moody's (1) affirmation of the bank's baa3 BCA and (2)
view of a continued very high likelihood of Qatari government support,
which continues to translate into four notches of uplift from its baa3
BCA. The change in outlook to negative from stable reflects both
the pressure on the bank's standalone credit profile and the change
in outlook on the sovereign rating.
QIIB is exposed to the same challenges in the operating environment as
other Qatari banks, which could lead to some reduction in its liquidity
buffers, however, Moody's expects the bank's performance
to be relatively resilient. The rating agency will monitor the
evolution of the bank's solid retail-focused franchise which
underpins its funding profile (around 70% of total deposits) and
its stock of liquid assets which, despite some pressure, are
expected to remain higher than its domestic peers (28% as of December
2016 vs 24% system average as of December 2016). In addition,
the bank has maintained high capital buffers, which also support
its current BCA.
BARWA BANK
The key drivers for the affirmation of Barwa Bank's A2 deposit ratings
are Moody's (1) affirmation of the bank's baa3 BCA and (2)
view of a continued very high likelihood of Qatari government support
which continues to translate into four notches of uplift from its baa3
BCA. The change in outlook to negative from stable reflects both
the pressure on the bank's standalone credit profile and the change
in outlook on the sovereign rating.
Barwa Bank's BCA is expected to come under pressure due to the challenges
in the operating environment, which are expected to reduce its liquidity
buffers. The bank's market funding - which currently
stands at 18% of total assets -- has risen recently,
and in the event the dispute becomes prolonged, there could be some
outflows, while domestic liquidity conditions remain tight.
The bank has a highly concentrated deposit base, more so than its
peers, which may also create challenges in a tight liquidity environment.
At the same time, the bank's profitability will continue to
be pressured due to the rise in funding costs over the outlook period.
Nevertheless, the BCA also captures Barwa Bank's solid asset
quality and capital buffers, which underpin its overall solvency
position and are key drivers of the BCA affirmation.
AHLI BANK
The key drivers for the affirmation of Ahli Bank's A2 deposit ratings
are Moody's (1) affirmation of the bank's baa3 BCA and (2)
view of a continued very high likelihood of Qatari government support
which continues to translate into four notches of uplift from its baa3
BCA. The change in outlook to negative from stable reflects both
the pressure on the bank's standalone credit profile and the change
in outlook on the sovereign rating.
Moody's says that Ahli Bank's standalone profile is expected
to come under pressure owing to the challenges in the operating environment
which are expected to reduce its liquidity buffers. The rating
agency says that the bank's market funding has increased -
at around 26% of total assets as of March 2017 up from 19%
as of December 2016 - which in the event the dispute becomes prolonged
could lead to some outflows, while domestic liquidity conditions
remain tight. Moody's also expects the bank's profitability
to decline over the outlook period due to higher funding costs.
Nevertheless, the BCA also captures Ahli Bank's solid asset
quality and capital buffers which underpin its overall solvency position
and is a key driver for the BCA affirmation.
INTERNATIONAL BANK OF QATAR (IBQ)
The key drivers for the affirmation of IBQ's A2 deposit ratings
are Moody's (1) affirmation of the bank's baa3 BCA and (2)
view of a continued very high likelihood of Qatari government support
which continues to translate into four notches of uplift from its baa3
BCA. The change in outlook to negative from stable reflects both
the pressure on the bank's standalone credit profile and the change
in outlook on the sovereign rating.
Moody's expects IBQ's BCA to come under pressure due to the
challenges in the operating environment, which are expected to reduce
its liquidity buffers. The bank's market funding has increased
- at 24% of total assets as of December 2016 up from 21%
as of December 2015) -- which in the event the dispute becomes prolonged
could lead to some outflows, while domestic liquidity conditions
remain tight. At the same time, the bank's profitability
will continue to be pressured due to the rise in funding costs over the
outlook period. Nevertheless, the BCA also captures IBQ's
solid asset quality and capital buffers, which underpin its overall
solvency position and are key drivers of the BCA affirmation.
AL KHALIJ COMMERCIAL BANK (al khaliji)
The key drivers for the affirmation of al khaliji's A3 deposit ratings
are Moody's (1) affirmation of the bank's ba1 BCA and (2)
view of a continued very high likelihood of Qatari government support
which continues to translate into four notches of uplift from its ba1
BCA. The change in outlook to negative from stable reflects both
the pressure on the bank's standalone credit profile and the change
in outlook on the sovereign rating.
The bank's standalone profile is expected to come under pressure
owing to the challenges in the operating environment, which are
expected to reduce its liquidity buffers. The bank's market
funding, although reduced, remains high - 27%
as of March 2017 down from 32% of total assets as of December 2016
- which in the event the dispute becomes prolonged could be subject
to some outflows, while domestic liquidity conditions remain tight.
At the same time, the bank's profitability (as measured by
net income to total assets), which recovered during 2017 after declining
to 0.6% for 2016 due to higher provisioning and funding
costs, would likely face renewed pressure from a further rise in
funding costs. Nevertheless, the BCA also captures al khaliji's
solid asset quality and capital buffers, which underpin its overall
solvency position and are key drivers of the BCA affirmation.
WHAT COULD MOVE THE RATINGS UP
Given the negative outlooks on the long-term deposit and issuer
ratings of Qatari banks, upgrades are unlikely in the near future.
There is also limited upside potential for the standalone BCAs of the
banks given the rating action.
However, the outlook could be stabilized if there was swift resolution
of the ongoing dispute.
WHAT COULD MOVE THE RATINGS DOWN
The standalone ratings of the banks could be downgraded if the deterioration
in the operating environment leads to a weakening in funding and liquidity
of the banks.
Likewise, long-term deposit or issuer ratings also benefit
from government support uplift and could be affected negatively by a reduction
in the government's capacity to provide support as indicated by
change in the sovereign rating.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_196398
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Releasing Office
• Person Approving the Credit Rating
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Alexios Philippides
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 852 3758 1350
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 852 3758 1350
Client Service: 44 20 7772 5454
