QATAR INTERNATIONAL ISLAMIC BANK (Q.P.S.C)
Fitch Ratings has affirmed
QIIB's Viability Rating (VR) has also been affirmed at 'bb+'. A full list of rating actions is below.
Key Rating Drivers
QIIB's IDRs are based on potential support from the Qatari authorities, if needed. The Short-Term IDR of 'F2' is the lower of two options mapping to an 'A-' Long-Term IDR because a significant proportion of the banking sector's funding is government-related and financial stress at QIIB is likely to come at a time when the sovereign itself is experiencing some form of stress.
QIIB's VR reflects its fairly small, albeit established, Islamic banking franchise in
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 in 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 support the strengthening of the operating environment for Qatari banks. The 2022 FIFA World Cup and higher private-sector demand from improving business sentiment also underpin this trend.
High Concentration Risk: QIIB's financing book is highly concentrated by borrower and sector. QIIB has deleveraged in real estate and contracting since 2018 but exposure to these sectors is still high (27% of financing at end-1H22) and at the higher end of the Qatari banking sector's.
Sound Asset Quality: The bank's Stage 3 financing ratio increased to 2.8% at end-2021 from 1.6% at end-2020 due to a 7% drop in its financing book and higher Stage 3 exposures with the seasoning of the book after a 32% growth in 2019. The ratio stabilised around that level in 1H22 and is still sound. The bank's Stage 2 financing ratio of 8% at end-1H22 compares well with peers'. Total reserve coverage of Stage 3 financing remained strong at 130% at end-1H22.
Solid Profitability: QIIB's profitability metrics are stronger than its direct peers' owing to its high margins and good cost management. These have strengthened since 2021 with the improvement in the operating environment. Annualised operating profit/risk-weighted assets (RWAs) increased to 2.2% in 1H22, supported by lower financing impairment charges (FICs).
Only Adequate Capitalisation: QIIB's common equity Tier (CET1) ratio of 11.2% at end-1H22 is only adequate for its high concentration risks. Nevertheless, capital ratios benefit from the bank's healthy internal capital generation and remain well above regulatory minimums.
Stable Funding and Liquidity: QIIB is primarily funded by customer deposits, which are largely sourced from retail (58% of total deposits at end-1H22) and government and government-related entity customers (28%). Concentration in the deposit base is lower than local peers' due to a high portion of retail deposits. Reliance on external funding is also lower than peers'. QIIB's gross financing/customer deposits dropped to 94% at end-1H22 from 114% at end-2020 after contraction in the financing book. Liquidity is supported by a large stock of liquid assets.
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 would likely result in a downgrade of QIIB' GSR and IDR. A VR downgrade, albeit unlikely, could come from a material weakening in asset quality and earnings, or unexpected rapid growth that erodes the bank's capital ratios, in particular if the bank's CET1 ratio goes below 9.5%.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
QIIB's GSR and IDR could be upgraded if Fitch views that the sovereign's ability to support the sector strengthens, either through a sovereign upgrade or through a substantial reduction in external funding and system assets relative to GDP.
QIIB's VR could be upgraded with improved capital ratios, in particular if the CET1 ratio exceeds 13% on a sustained basis.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The ratings of senior unsecured sukuk certificates issued by QIIB's special purpose vehicle (SPV),
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The sukuk certificates are subject to the same sensitivities as the bank's IDRs.
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).
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
QIIB's IDRs are linked to the
ESG Considerations
QIIB has an ESG Relevance Score of '4' for Governance Structure due to its Islamic banking nature (in contrast to a typical ESG relevance score of '3' for comparable conventional banks), which has a moderately negative impact on its credit profiles, and is relevant to the ratings in conjunction with other factors. As an Islamic bank, it needs to ensure the compliance of its entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
In addition, QIIB has an exposure to Relevance Score of '3' for Social Impacts (in contrast to a typical ESG Relevance Score of '2' for comparable conventional banks). This reflects that Islamic banks have certain sharia limitations embedded in their operations and obligations, although it only has a minimal credit impact on the entities.
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, visitwww.fitchratings.com/esg.
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