Fitch Ratings has affirmed Commercial Bank's (CBQ) Long-Term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook. The ratings agency has downgraded CBQ's Viability Rating (VR) to 'bbb-' from 'bbb'.
The Stable Outlook reflects the Outlook on the Qatari sovereign, Fitch noted yesterday.
CBQ's IDRs, Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's expectation of support from the Qatari authorities for domestic banks in case of need. This reflects Qatar's strong ability to support its banks, as indicated by its rating (AA/Stable), combined with Fitch's belief that there would be a strong willingness to do so. The latter is based on a history of sovereign support.
"The government has demonstrated a strong commitment to its banks and key public-sector companies, and we expect this to continue, despite the effects of lower oil prices. The sovereign's capacity to support the banking system is sustained by its sovereign wealth funds and revenues, mostly from its hydrocarbon production.", Fitchs said.
The downgrade of the VR reflects the deterioration in CBQ's asset quality metrics, mainly in its home market of Qatar. It also factors in a sharp rise in impairment charges, mainly relating to newly impaired Qatari exposures, but also due to the deteriorating performance of the bank's Turkish subsidiary, Abank.
Fitch expects asset quality metrics to continue to deteriorate before stabilising in 2017/18. Elevated impairment charges will significantly weaken profitability, which we expect to be minimal until 2018. Fitch has taken into account the bank's plans to boost capital in 4Q16 and 1Q17 and its strategy to aim for lower risk lending, which should strengthen the balance sheet.
CBQ's VR reflects its strong and established franchise in Qatar, its adequate funding and liquidity but also weakening profitability. The return on assets is well below the average of Qatari peers; largely as a result of high impairment charges.
CBQ's asset quality metrics have deteriorated, and the impaired loans ratio of 5.3 percent at end-3Q16 was well above that of peers. The deterioration was largely due to some Qatari real estate exposures. CBQ's exposure to the real estate and contracting sectors is well above average, representing 31 percent of the loan book at end-1H16. “We expect the impaired loans ratio to increase further in 2017, including from Abank, which accounts for about 15 percent of CBQ's balance sheet and 20 percnet of its impaired loans.”
CBQ’s capital is adequate. It has obtained approval from its shareholders for a rights issue.
