Mubasher: Qatar International Islamic Bank’s (QIIB) Additional Tier 1 Issuance is seen credit positive, according to a report issued by Moody’s on Thursday.
The issuance reverses the recent declining capital trend of the Qatar-based Islamic bank following high growth during 2011-15, the research agency clarified the reason behind this positive rating, expecting a replenishment of the bank’s liquid assets amid tightening liquidity.
The bank’s ratio of liquid assets to total assets declined to 28% as of December 2015 from 38% as of December 2012.
“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”, Moody’s reported.
Accordingly, capital adequacy ratio and Tier 1 capital are forecast to significantly improve to around 20% from 16.6% reported as of June 2016, the report revealed, adding this level would considerably exceed the regulatory minimum for Tier1 capital of 10% and minimum total capital of 12.5%.
Moreover, the top-up is to provide the bank with a substantially stronger buffer to absorb potential losses as the economy slows and asset quality weakens and to 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% during 2011-14, well above Qatari banks’ average of 17% 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”, the report highlighted.
A growth slowdown, when combined with the capital increase, will support strong and stable capital buffers over the next 12-18 months.
Coinciding with lower oil and gas revenues, credit growth is expected to decline in 2016, but to stay robust at 10% as Qatar’s growing economy “continued high government spending on infrastructure projects ahead of the FIFA World Cup in 2022 that will continue to offer lending opportunities.”
