Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed Qatar International Islamic Bank’s (QIIB) Financial Strength Rating (FSR) at ‘A-’, which reflects QIIB’s strong capital adequacy and very strong liquidity and asset quality.
Ratings remain constrained by concentration risks, by QIIB’s limited growth potential beyond the confines of what is a small market for retail business and by the decline in net profitability. However, given the outlook for the Qatari economy, QIIB is expected to continue to successfully pursue its growth strategy in the government and corporate sectors and to sustain high growth in gross income and operating profit.
The Outlook on the FSR is therefore revised to ‘Positive’. The Long- and Short-Term Foreign Currency Ratings (FCR) are also affirmed at ‘A-’ and ‘A2’, respectively, also on ‘Positive’ Outlook, based on the Bank’s intrinsic financial strength and demonstrated government support for Qatari banks. The Support Rating is affirmed at ‘2’.
For the ratings to rise, the increase in operating and net profit would have to be sustained – albeit at a more moderate level than in 2013 – without any significant weakening of asset quality or capital adequacy.
QIIB’s new strategy has evidently placed the bank on a higher growth trajectory, and has succeeded in gradually bringing about a more balanced business profile with a higher share of government and SME business. Financing asset quality remains excellent and higher financing volumes enabled the Bank to sustain high growth in its customer deposits and strong liquidity. Despite the rise in risk weighted assets, capital was employed more efficiently allowing the Bank to maintain its strong capital adequacy ratio (CAR), although the total capital to total assets ratio continued to decline.
Further growth of corporate and SME financings and the planned expansion of the branch network would likely require a rights issue or other form of capital increase in order to ensure that the Bank’s capital base provides all the necessary buffers. Certain modifications will also have to be made to the business model in order to comply with limits on real estate investments and to generate alternative sources of income, as well as for positioning the Bank to grow its trade finance business and to increase its business geographically.
QIIB was incorporated in May 1990 in Doha as the second Islamic bank in the country. Following a special issue of shares as part of the government’s assistance programme for Qatari banks in 2009 and 2010, the Bank’s largest single shareholder is the Qatar Investment Authority with 16.67%. QIIB engages in Islamic financing and investing activities, with a focus on retail and the housing sector. QIIB operates 16 branches in Qatar and also participates in a small number of associate companies in the consumer finance, insurance and real estate sectors.
Senior Credit Analyst
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