Posted on June 02, 2011

Moody's Investors Service has assigned local and foreign currency long-term and short-term issuer ratings of A3/Prime-2 to Qatar International Islamic Bank (QIIB), and a standalone bank financial strength rating (BFSR) of D+, which maps to Ba1 on the long-term rating scale. All ratings carry stable outlooks.

A press release issued here on Wednesday said that the assigned BFSR considers QIIB's solid financial fundamentals, especially the very high capitalisation levels --with a Tier 1 capital ratio at 28.6% (as of end-March 2011) - and good core earnings-generating capability and satisfactory asset-quality levels, with a non-performing assets ratio of 3.2% (at end-March 2011). Moody's has also considered the favourable operating conditions in the Qatari banking system, as well as the history of proactive and ongoing support by the Qatari authorities to local banks. However, QIIB's BFSR is constrained by the bank's modest, but improving, franchise and its high geographic and sectoral credit concentrations, mainly in real-estate-related financing.

Although QIIB's asset quality weakened in 2010, impaired loans stabilised in Q1 2011, in part because a portion of potentially weak exposures were transferred to the government. The bank's concentration to real-estate-related exposures could give rise to additional impairments. However, Moody's scenario analysis stress-testing the loan and investment books of QIIB shows that the bank is well-placed to absorb potential asset-quality shocks at current capitalisation and profitability levels. QIIB's liquidity remains strong, with sufficient levels of cash and repo-able investments, although it is exposed to potential asset-liability mismatches due to the contractually short-term nature of its customer deposits. However, QIIB is one of the well-established Islamic banks in Qatar, benefiting from a strong brand name and reputation along with new product offerings.

These factors allow it to continuously grow its retail deposit base, which enhances granularity and stickiness in the deposit book. Currently, around 70% of QIIB's depositors are retail customers. QIIB's long-term/short-term issuer ratings benefit from a four-notch uplift to A3/Prime-2, reflecting Moody's assessment of a high probability of extraordinary government support in case of need. The Qatari government has demonstrated on many occasions its willingness and ability to provide support to local banks. The recent capital injection to QIIB -- which resulted in a 16.7% government ownership by the Qatari Investment Authority -- is indicative of the willingness to support. QIIB, headquartered in Doha, in Qatar had assets of QR20.151bn ($5.53bn) as of 31 March 2011.