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Fitch affirms Doha Bank at ‘A'; outlook stable

The ratings considered DB's deteriorating retail asset quality and tightening liquidity.

September 20, 2010 1:55 by

Fitch Ratings has today affirmed Doha Bank’s (DB) Long-term Issuer Default Rating (IDR) at ‘A’ with a Stable Outlook. Fitch has simultaneously affirmed DB’s Short-term IDR at ‘F1′, Individual Rating at ‘C’, Support Rating at ‘1’ and the Support Rating Floor at ‘A’.

DB’s IDRs and Support Ratings are driven by the extremely high probability of support from the Qatari authorities, if required. The Individual Rating takes account of DB’s strong domestic franchise, acceptable earnings and Tier 1 capitalisation. The ratings also consider DB’s deteriorating retail asset quality and tightening liquidity.

Despite the global financial crisis, DB’s earnings have continued to improve. Fitch anticipates that earnings for the year ending 31 December 2010 (FY10) will be better than in FY09, due to improved net interest income resulting from moderate credit growth and well-controlled costs. This is likely to be partially offset by higher retail and real estate impairments on the back of softening rental prices.

Credit growth has begun to moderate following three years of rapid credit growth to FYE08. During H110, DB’s loan book grew by a modest annualised 5.6% to QAR27.4bn and is concentrated in consumer lending. Asset quality has weakened during H110 and FY09 due to higher levels of retail NPLs following recent rapid credit growth. At end-H110, DB’s NPL ratio had weakened to 3.8% (FYE09: 3.2%) which, although high from a Qatar perspective, compares favourably with the bank’s global peers. Specific reserve coverage weakened to 75.8% at end-H110 (FYE09: 84.3%).

DB is primarily funded by short-term customer deposits. In an effort to lengthen the bank’s funding profile, DB intends to issue a USD500m senior bond in Q410 or Q111. Liquidity is acceptable but is under pressure. Liquidity pressures eased slightly following the government’s purchase of some loans during FY09 but continued to tighten during H110, with DB reporting a loans/deposits ratio of 100.5% at end-H110 (FYE09: 95.4%).

DB’s Tier 1 capital adequacy of 11.2% at end-H110 (FYE09: 11.5%) was supported by the government’s injection of capital and retained profits. While Fitch considers these levels of capital to be acceptable, the agency believes that higher levels of capital are necessary in view of the bank’s recent rapid credit growth and weakening asset quality.

DB is one of Qatar’s largest banks. Historically, a retail bank, it commenced operations in 1979 and provides a range of financial services ? including Islamic banking ? to individuals and commercial, corporate and institutional clients.

In Fitch’s rating criteria, a bank’s standalone risk is reflected in Fitch’s Individual ratings and the prospect of external support is reflected in Fitch’s Support ratings. Collectively these ratings drive Fitch’s Long- and Short-term IDRs.

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