DOHA: The rating agency Moody’s yesterday said that QIIB’s Additional Tier 1 (AT1) sukuk issuance of QR1bn ($275m) “is credit positive”.
The global rating agency in a statement yesterday noted that this AT1 issuance of QR1bn sukuk is credit positive for QIIB because it reverses the recent declining capital trend of the Qatar-based Islamic bank following high growth during 2011-15, and will replenish the bank’s liquid assets amid tightening liquidity.
“As a result of this issuance, we estimate that QIIB’s reported capital adequacy ratio and Tier 1 capital will improve substantially to around 20 percent from 16.6 percent reported as of June 2016”, it noted.
This level would significantly exceed the regulatory minimum for Tier 1 capital of 10 percent and minimum total capital of 12.5 percent (including a capital conservation buffer). The capital increase will provide the bank with a considerably stronger buffer to absorb potential losses as the economy slows and asset quality weakens.
The additional capital will also support the bank’s continued balance-sheet expansion.
The bank’s financing growth (analogous to loan growth at conventional banks) increased at a compound annual growth rate of 27 percent during 2011-14, well above Qatari banks’ average of 17 percent during the same period. This is consistent with the growth of Islamic assets in Gulf Cooperation Council countries overall, exceeding conventional asset growth rates and driving Islamic banks to source funding and capital through AT1 and other capital market sukuk issuances.
Although growth slowed to 14 percent during 2015, this growth had eroded QIIB’s capital buffers, leading to a drop of almost eight percentage points since 2011.
We expect credit growth to decline further but remain robust at around 10 percent in 2016, underpinned by Qatar’s growing economy, where, despite lower oil and gas revenues, continued high government spending on infrastructure projects ahead of the FIFA World Cup in 2022 will continue to offer lending opportunities. A growth slowdown, when combined with the capital increase, will support strong and stable capital buffers over the next 12-18 months.
Beyond strengthening its capital base, we expect that the issuance will increase QIIB’s liquid assets balance. Liquidity has been reduced by the bank’s rapid financing growth and tightening liquidity in the region as a result of lower government oil revenues and associated deposits.
The bank’s ratio of liquid assets to total assets declined to 28 percent as of December 2015 from 38 percent as of December 2012, but we expect that QIIB’s improved liquidity will provide solid buffers against persistent liquidity pressures as oil prices remain low.
The Peninsula
