Fitch Ratings has placed
The Short-Term IDR and the Support Rating Floor (SRF) were also placed on RWN.
The RWN reflects the Qatari banking sector's increasing reliance on external funding and recent rapid asset growth, which may have moderately weakened the sovereign's ability to provide support to the system, in case of need.
Key Rating Drivers
Non-resident funding reached
The 'A' domestic systemically important bank (D-SIB) SRF for Qatari banks is at the higher end of the typical range for D-SIB SRFs in jurisdictions where the sovereign is rated 'AA-' and, in Fitch's view, reflects a high propensity to support the banking system.
Fitch will resolve the RWN following further analysis of the current composition and stability of Qatari banks' non-resident funding, the evolution of this funding in volumes and sources, banks' liquidity-management plans and the sovereign's ability to provide liquidity support to banks, in case of need. In case of a downgrade,
IDRs, SR and SRF
It also reflects Fitch's view of a strong propensity to support the banking sector, including
The Short-Term IDR of 'F1' is the lower of two options mapping to an 'A' Long-Term IDR, reflecting that a significant proportion of the banking sector's funding is government-related and a stress on
VR
Fitch has revised the outlook on Qatari banks' operating environment to stable from negative as short-term downside risks from the pandemic fallout on banks' credit profiles have subsided. Fitch forecasts
We believe the near-term risks on the sector's asset quality (end-1H21: average Stage 3 loans ratio of about 2%) are largely contained - even after the expiry of the
We view the bank's underwriting and risk controls as weaker than peers', due to high single-name and sector concentrations, which expose the bank to material credit risk. However,
The bank's non-performing loans (NPL) ratio (end-1H21: 5.6%) is higher than peers', reflecting the seasoning of high-risk contracting and GCC exposures. NPL generation was still high in 1H21 (3.1% annualised basis; 2020: 6%). The NPL ratio was flattered by large write-offs (1H21: 120bp of gross loans; 2020: 550bp), as part of the clean-up exercise. Risks are high from Stage 2 loans (25% of gross loans) at end-1H21 and loans that are subject to deferrals (29%; a much lower 2% considering deferred instalments only). Total reserves coverage of NPLs decreased to 79% at end-1H21 (specific coverage of 53%), due to write-offs.
Operating profitability has improved (1H21: 1.8% of risk-weighted assets (RWAs); 2020: 1%) but remains below sector average and is still dampened by high impairment charges (45% of pre-impairment operating profit; 2020: 66%). Net interest margin (NIM) was resilient in 1H21 at 2.6% (2019: 2.4%), underpinned by lower funding costs. Cost efficiency has also slightly improved (costs/income ratio of 28%) as per the bank's strategy.
We expect some moderate NIM pressure in the medium term to result from a higher share of low-yielding government lending and an increase in long-term deposits and foreign funding. Impairments are likely to remain high in 2021-2022, given asset-quality pressures, although the bank's net cost of risk (1H21: 150bp) should gradually wane in the medium term, due to fewer write-offs and potential recoveries from lumpy NPLs conservatively provisioned for or written-off.
Buffers over regulatory minimum capital requirements are sound (about 470bp for the CET1 ratio at end-1H21). We expect the CET1 ratio to be only slightly eroded from its current level by renewed private-sector loan growth and dividend distributions.
The bank's gross loans/deposits ratio of 128% and net loans/deposits of 122% (versus banking sector average of 125%) at end-1H21 reflect a high reliance on wholesale funding (end-1H21: 39% of total funding), with the majority from foreign sources and due within one year. Additionally, about 47% of customer deposits was sourced from non-residents, exposing the bank's funding to changes in investor sentiment. The bank's funding profile remains fairly short-term , although
Liquid assets represented an adequate 20% of total assets or 38% of customer deposits at end-1H21. However, liquidity risk is heightened by a high share of concentrated and confidence-sensitive foreign deposits (end-1H21: 47% of total deposits), which have increased in 2020-1H21, as has for the sector. Its regulatory liquidity coverage ratio was 125% at end-1H21, above the 100% minimum requirement.
SPVs and SENIOR DEBT
The ratings of senior debt issued by
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
IDRs, SR, and SRF
The IDRs and SRF could be downgraded and revised lower, respectively, if Fitch concludes that the Qatari authorities' ability to support the banking sector or the bank has moderately reduced as a result of the increase in external funding and the growth in system assets. In case of a downgrade,
A downgrade of the sovereign or a negative change in Fitch's assessment of the government's propensity to provide support could also result in a downgrade of
VR
The VR is primarily sensitive to further material weakening in the bank's asset quality and core loss-absorption capacity or to large foreign deposit outflows, if not offset by liquidity support from the Qatari authorities.
SPVs and Senior Debt
The ratings of debt issued by the SPV are sensitive to negative changes in the bank's IDR.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
IDRs, SR, and SRF
Rating upgrades are highly unlikely given the RWN on the ratings, their already high level relative to the sovereign's, and the Stable Outlook on the sovereign's ratings.
VR
The VR could be upgraded if the bank successfully executes its consolidation strategy, reduces its stock of problem loans - with its real-estate and contracting exposure decreasing substantially compared with the sector average - and the bank maintaining its CET1 ratio above 13% in the medium term. A lower reliance on foreign funding could also provide upside to the VR.
SPVs and Senior Debt
The ratings of debt issued by the SPV are sensitive to positive changes in the bank's IDR.
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
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.
RATING ACTIONSENTITY/DEBT RATING PRIOR
Doha Bank Q.P.S.C . LT IDR A Rating Watch On A
ST IDR F1 Rating Watch On F1
Viability bb Affirmed bb
Support 1 Affirmed 1
Support Floor A Rating Watch On A
senior unsecured
LT A Rating Watch On A
senior unsecured
ST F1 Rating Watch On F1
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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