QATAR: Standard & Poor’s Ratings Services has affirmed its ‘A-/A-2’ long and short-term counterparty credit ratings …on Doha Bank

Standard & Poor’s Ratings Services has affirmed its ‘A-/A-2’ long- and short-term counterparty credit ratings on Doha Bank. The outlook is stable.

Doha Bank raised about QR1.5bn in March this year through the issuance of new shares subscribed by the existing shareholders

The ratings affirmation follows the bank’s announcement on March 26 that it had successfully raised its capital by about 25% through the issuance of 51.7mn new shares.

“We believe the capital increase will enable the bank to participate in Qatar’s strong lending growth and maintain strong capital ratios. Furthermore, the bank’s capitalisation is now more in line with that of its rated domestic peers,” S&P said.

Doha Bank raised about QR1.5bn in March 2013 through the issuance of new shares subscribed by the existing shareholders. The bank disclosed that it might raise additional capital in the form of global depositary receipts (GDRs), although no details were disclosed.

The recent capital increase, and the GDR issuance if executed, should mitigate the bank’s likely rapid loan growth, the rating agency said.

“We are therefore less concerned about the bank’s capitalisation, especially given that the transaction will likely boost the bank’s risk-adjusted capital ratio, our key figure in analysing a bank’s capital, to almost 13% (based on risk assets as of December 31, 2012).

“However, we expect this ratio to remain at less than the 15% threshold we usually associate with ‘very strong’ capital and earnings, according to our criteria. We expect the bank’s capitalisation to moderately erode over the next few years, following a rapid increase in lending for infrastructure development. We also expect that dividend payouts will continue to exceed 70% over the next three years and that internal capital generation will therefore be low,” S&P said.

The stable outlook balances Doha Bank’s strong capital and earnings against the risks attached to potential rapid asset growth, maturity mismatches, and strong competition.

S&P said: “We could raise the ratings on Doha Bank if it increased the granularity of its loan portfolio and funding base, while improving asset quality and maintaining strong capitalisation. Even if the recently completed capital increase had no impact on the ratings, we believe it will heighten the possibility of an upgrade if there is a material improvement in the bank’s operating environment or financial profile.

“On the other hand, we could lower the ratings if Doha Bank’s concentration risk materialised on either side of the balance sheet, which could undermine the bank’s funding and liquidity profile or risk position. The bank has high industry concentrations in its loan book because it is becoming increasingly specialised in contract financing (16% of the loan book in 2012 from 10% in 2008) and is also widely exposed to real estate (almost 20% of the loan book in 2012).”

Source: Caye Global News, Gulf Times


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