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Rating Action:

Moody's affirms ratings of Barwa Bank and International Bank of Qatar

28 Feb 2019

Limassol, February 28, 2019 -- Moody's Investors Service ("Moody's") has today affirmed the local and foreign currency long-term and short-term deposit ratings of Barwa Bank Q.S.C. (Barwa) at A2/P-1 and International Bank of Qatar Q.S.C. (IBQ) at A2/P-1, following significant progress made by the two banks on the merger which was announced in August 2018. In addition, Moody's has affirmed the baseline credit assessments (BCAs) and adjusted BCAs of Barwa and IBQ at baa3. The outlook on the banks' long-term ratings remains stable.

Following the public announcement of a possible merger, both banks' shareholders approved the transaction in December 2018. Moody's does not foresee hurdles to the transaction and the legal merger of the two entities is expected to be completed by April 2019 subject to Qatar Central Bank approval. Once completed, the surviving entity will be Barwa Bank and all assets and liabilities of IBQ will be transferred to Barwa in exchange for new Barwa shares issued to IBQ's shareholders.

Barwa is an Islamic bank based in Qatar and holds a market share of around 3.3% of the country's banking system assets. IBQ is a conventional bank also operating in Qatar, with around 2% market share.

Barwa's baa3 BCA affirmation is driven by Moody's view that this merger upon completion will (1) strengthen Barwa's domestic franchise, making it the third largest Islamic bank in Qatar and the sixth largest Qatari bank, with total assets of around QAR80 billion (US$22 billion) and a 6% market share and (2) improve asset quality and profitability, albeit modestly. While this transaction will reduce capital initially, this will remain strong. The benefits of the merger are counterbalanced by upfront merger costs and integration challenges.

IBQ's baa3 BCA affirmation reflects Moody's view that the bank's operations and standalone profile are not expected to change significantly before the merger is completed, after which Moody's will withdraw the ratings of IBQ.

A full list of affected ratings is at the bottom of the press release.

RATINGS RATIONALE

-- AFFIRMATION OF BCAs AND LONG-TERM RATINGS

-- BARWA BANK Q.S.C. (BARWA)

The affirmation of Barwa's ratings captures Moody's view that the forthcoming merger with IBQ will not immediately alter the bank's standalone credit profile. The combined entity's asset quality will improve modestly. At September 2018 the combined non-performing loans to gross loans (NPL) ratio would have been 2.1%, compared to 3.1% for Barwa standalone. The combined entity's NPL ratio of 2.1% would be in line with its Qatari peers.

Capital at the combined entity will be lower than for Barwa on a standalone basis, but remain strong with a pro-forma tangible common equity (TCE) to risk-weighted assets ratio at 15.5% as of September 2018 compared to 16.3% for Barwa standalone at the same date. Moody's expects that the bank will maintain lower TCE ratio in 2019 as modest credit growth will be largely funded through internal capital generation.

Moody's expects the combined bank's future profits to be lower in 2019 owing to non-recurring integration costs related to the merger, before benefiting from anticipated expense and revenue synergies. The combined entity's pro-forma net income to tangible assets stood at 2% for the first nine months of 2018 whereas Barwa's standalone ratio was 1.7% for the same period.

Furthermore, Barwa will continue to have strong liquidity, with the combined entity liquid banking assets to tangible banking assets of around 30% as of September 2018, compared to 36% for Barwa. The merger will reduce the reliance on market funding with a pro-forma market funding ratio of the combined entity standing at 18.5% compared to 23% for Barwa standalone as of September 2018, as it absorbs a bank with a larger retail deposit base.

Barwa's BCA also incorporates risks related to very high levels of single-name and sector concentrations -- features common to most banks in the GCC. The consolidation of IBQ will only marginally reduce the concentrations.

Moody's affirmation of Barwa's A2 deposit rating is based on its continued very high government support assumptions, which translate into four notches of uplift from the bank's baa3 BCA. Although Qatari government ownership will be reduced to 44% from 52%, Moody's continues to assess the likelihood of government support for Barwa as Very High -- consistent with other larger Qatari peers.

Moody's assessment of a very high probability of government support is based on (1) the bank's increased systemic importance as the sixth largest bank in Qatar (post consolidation); and (2) the Qatari authorities' ample capacity and established track record in pre-emptively supporting Qatari banks in the past.

-- INTERNATIONAL BANK OF QATAR (Q.S.C.) (IBQ)

Moody's affirmation of IBQ's baa3 BCA reflects Moody's view that the bank's operations and standalone profile are not expected to change ahead of the completion of the merger. Upon completion of the merger, all assets and liabilities will be transferred to Barwa, IBQ will cease to exist as a separate legal entity, and its ratings will be withdrawn.

IBQ's baa3 BCA reflects the bank's strong asset quality, high capitalisation and solid liquidity buffers. These strengths will continue to be moderated by sizeable single-name and sector concentrations, some reliance on confidence-sensitive market funding and limited business diversification stemming from IBQ's corporate banking focus.

IBQ's A2 long-term deposit ratings continues to benefit from a four-notch uplift from the bank's baa3 BCA, based on Moody's assessment of a very high likelihood of support from the Government of Qatar, in case of need, reflecting the Qatari authorities' ample capacity and established track record in pre-emptively supporting Qatari banks in the past.

-- STABLE OUTLOOKS

The stable outlook on Barwa's long-term deposit ratings balances the expected benefits from the successful closing of the overall merger relative to deal execution and integration risks.

For IBQ, the stable outlook captures Moody's expectation that until the transaction is completed, the bank's sound solvency fundamentals will continue to balance the risk of its significant credit concentrations and limited business diversification.

WHAT COULD CHANGE THE RATINGS -- UP

Upward pressure on Barwa's ratings is unlikely given its focus on a successful merger execution and integration process, however, this could materialise over time in the event of a (1) significant reduction in concentration risks; and (2) material reduction in market funding while liquidity buffers are maintained.

IBQ's ratings are at par with Barwa's and hence have limited upside potential upon a successful merger completion. At that time, Barwa will remain as the surviving operating entity and all of the assets and liabilities of IBQ will be transferred to Barwa after which Moody's expects to withdraw the ratings of IBQ.

WHAT COULD CHANGE THE RATINGS -- DOWN

Downward pressure on both banks' ratings would stem from (1) any assessment of a weakening of the Qatari government's capacity or willingness to provide support; (2) a material deterioration in the Qatari operating environment weighing on the banks' respective financial fundamentals and/or (3) an unsuccessful integration phase from both banks following the merger.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The local market analyst for Barwa Bank Q.S.C. and BBG Sukuk Ltd ratings is Nitish Bhojnagarwala, tel.: +971 (423) 795-63.

The local market analyst for International Bank of Qatar (Q.S.C.) and IBQ Finance Limited ratings is Badis Shubailat, tel.: +971 (423) 795-05.

BARWA BANK Q.S.C.

..Affirmations:

.... Adjusted Baseline Credit Assessment, Affirmed baa3

.... Baseline Credit Assessment, Affirmed baa3

.... Long-term Counterparty Risk Assessment, Affirmed A1(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Long-term Counterparty Risk Rating, Affirmed A1

.... Short-term Counterparty Risk Rating, Affirmed P-1

.... Short-term Bank Deposits, Affirmed P-1

.... Long-term Bank Deposits, Affirmed A2, Outlook Remains Stable

..Outlook Action:

....Outlook Remains Stable

BBG SUKUK LTD

..Affirmations:

....Senior Unsecured Medium-Term Note Program, Affirmed (P)A2

....Senior Unsecured Regular Bond/Debenture, Affirmed A2, Outlook Remains Stable

..Outlook Action:

No Outlook Assigned

INTERNATIONAL BANK OF QATAR (Q.S.C.)

..Affirmations:

.... Adjusted Baseline Credit Assessment, Affirmed baa3

.... Baseline Credit Assessment, Affirmed baa3

.... Long-term Counterparty Risk Assessment, Affirmed A1(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Long-term Counterparty Risk Rating, Affirmed A1

....Short-term Counterparty Risk Rating, Affirmed P-1

.... Short-term Bank Deposits, Affirmed P-1

.... Long-term Bank Deposits, Affirmed A2, Outlook Remains Stable

..Outlook Action:

....Outlook Remains Stable

IBQ FINANCE LIMITED

..Affirmations:

.... Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)A2

.... Backed Other Short-term, Affirmed (P)P-1

.... Backed Senior Unsecured Regular Bond/Debenture, Affirmed A2, Outlook Remains Stable

..Outlook Action:

....Outlook Remains Stable

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 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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

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: 44 20 7772 5456
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: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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