Fitch Ratings has affirmed the Doha Bank’s IDRs, Support Rating (SR), and Support Rating Floor (SRF) with Stable Outlook, reflecting Fitch’s expectation of an extremely high probability of support from the Qatari authorities for domestic banks in case of need.
This reflects the strong ability of Qatar to support its banks, as indicated by its rating (AA-/Stable), combined with Fitch’s belief of a strong willingness to support the banking sector and the bank.
The government and Qatar Central Bank have extended a QR75bn stimulus package (10% of GDP), which includes a zero-cost QR50bn repo facility for banks to provide credit extensions of both principal and interest to borrowers affected by the pandemic, until June 15, 2021.
As part of the stimulus, Qatar Development Bank (QDB) launched a QR3bn National Guarantee Programme that provides guarantees at subsidised rates to local banks against loans extended to SMEs affected by the pandemic.
Doha Bank has a well-established and adequate franchise in Qatar. It accounted for about 6% of the sector’s lending and deposits at end-9M20 and has the second largest conventional branch network. Doha Bank’s ‘A’ SRF is at the same level as other Qatari domestic systemically important banks’ (D-SIB) SRFs.
The bank’s standalone creditworthiness is underpinned by a well-established domestic franchise in Qatar and a strategy to de-risk and consolidate its financial profile in the medium term.
Fitch notes that the bank’s revised strategy is to prioritise asset-quality improvement through tightened underwriting standards, including growing government lending, a reduction in construction and real-estate exposures, cost optimisation, and core capital strengthening.
It now has a conservative approach to loan growth (9M20: minus 5%). Doha Bank is focused on consolidating its financial profile in the short term. It is likely to grow only moderately over the rating horizon, although it aims to maintain its established market position.
The bank will prioritise asset-quality improvement through tightened risk controls (regarding its weaker GCC operations and a reduction in high-risk construction and real estate exposures) and active loan monitoring. It also plans to optimise costs, maintain its net interest margin in line with peers and strengthen its core capitalisation.
The rating agency notes the bank’s de-risking plan may prove challenging in the short to medium term given the effects of the pandemic, below-trend growth outlook in Qatar in 2020–2021 and lower hydrocarbon prices that will weigh on the government’s capital spending.
The management team has a good degree of credibility and experience and knowledge of the local market. Corporate governance practices are sound, underpinned by effective board oversight.
“We will continue to focus on de-risking the operations and implementing the 5R’s (remedial management, restructuring of loans, revenue enhancement, rationalisation of cost and remodelling the business) and we are seeing notable improvements in core capital and maintenance of NPL ratio with good coverage and revised strategy is to prioritise asset-quality improvement through tightened underwriting standards, including growing higher-quality government lending, a reduction in high-risk construction and real-estate exposures, cost optimisation, and core capital strengthening,” Doha Bank CEO Dr R Seetharaman said.
He added that given the challenges imposed by Covid-19, the affirmation of ratings and Stable Outlook reinforces the 5R strategy is yielding results and integrates well with excellent economic management by State of Qatar.
Doha Bank’s ‘A’ SRF is at the same level as other Qatari domestic systemically important banks’ (D-SIB) SRFs.
