Fitch Affirms ‘A’ Rating for Qatar International Islamic Bank with Stable Outlook

Fitch Ratings, a leading global credit rating agency, has recently reconfirmed the Long-Term Issuer Default Rating (IDR) of Qatar International Islamic Bank (QIIB) at ‘A’, signaling a stable and robust position in the international financial sector. This affirmation reflects QIIB’s solid financial health and consistent performance. Furthermore, QIIB’s Viability Rating (VR) remains at ‘bb+’, highlighting the bank’s dependable and stable operational trajectory. This rating reassurance underscores QIIB’s strength and reliability as a key player in the banking industry, offering insights into its sustained financial stability and performance.

QIIB’s ratings benefit significantly from potential backing by Qatari authorities, denoted by a Government Support Rating (GSR) of ‘a’. The stable outlook on QIIB’s IDR parallels that of the Qatari sovereign rating, which stands at AA/Stable. This alignment suggests a strong governmental inclination to support the banking sector, irrespective of the bank’s size or ownership structure, coupled with Qatar’s substantial net foreign assets and revenue streams. However, the large size of the Qatari banking sector relative to the domestic economy and its high reliance on external funding slightly temper these strengths.

Operating in a Favorable Economic Climate

Qatar’s lucrative hydrocarbon market continues to bolster the domestic operating environment, fostering a favorable climate for its banks. Within this robust framework, QIIB, though the smallest among the four Islamic banks in Qatar, commands a notable presence with a 12% market share of Islamic banking assets and a 3% share of the total banking system assets as of the first quarter of 2024.

Concentration Risks and Asset Quality

Despite its smaller size, QIIB exhibits a high concentration of financing by borrower and sector, particularly in real estate and contracting, which constituted 21% of its gross financing by the end of 2023. However, the bank has been actively managing and reducing these exposures since 2018. The bank’s Stage 3 financing ratio—indicative of non-performing loans—remained moderate at 3.2% at the end of the first quarter of 2024, with special reserve coverage at 95%, signaling reasonable asset quality that aligns well with industry peers.

Profitability and Capitalization

QIIB’s profitability has shown resilience, with an annualized operating profit rising to 2.6% of risk-weighted assets (RWAs) in the first three months of 2024, up from 2.2% in 2023. This increase is attributed to lower costs and a significant reduction in the cost of risk, despite challenges from rising funding costs. Looking ahead, Fitch anticipates the bank to sustain this level of profitability.

The bank’s capitalization, though deemed adequate, is closely monitored. QIIB’s common equity Tier 1 (CET1) ratio improved to 13.4% by the end of the first quarter of 2024, supported by internal capital generation and controlled growth in risk-weighted assets. Fitch projects this ratio to stabilize around 12% by the end of 2024, reflective of ongoing risks and growth strategies.

Funding Stability

QIIB’s funding structure is predominantly derived from customer deposits, accounting for 73% of its total non-equity funding, with a substantial portion coming from retail, government, and related corporate customers. This diversified deposit base, coupled with a lower reliance on external funding compared to its peers, underpins a stable funding profile for the bank.

Rating Sensitivities

While the current outlook for QIIB remains stable, factors such as a downgrade of the Qatari sovereign or shifts in the government’s support framework could impact the bank’s ratings. Conversely, an upgrade could occur if there’s an improvement in the sovereign’s capacity to support the banking sector, although this is currently viewed as unlikely given the stable outlook on the sovereign ratings.

Qatar International Islamic Bank (QIIB) remains a steadfast institution in the financial world, guided by strategic foresight and bolstered by substantial governmental backing. With its disciplined approach to asset management and proactive growth strategies, QIIB adeptly handles the intricacies of the financial sector. As a pivotal entity within Qatar’s banking landscape, the bank continues to offer both stability and potential for growth, adapting effectively to dynamic economic environments and securing its position as a reliable choice for investors and customers alike.