DOHA: Global credit rating agency Moody??™s has upgraded the Doha Bank??™s foreign currency deposit ratings to ???A2/P-1??™ from ???A3/P-2??™ and its financial strength rating (FSR) to ???D+??™ from ???D??™ with a positive outlook.
All of the bank??™s ratings now carry a stable outlook, said the rating agency in a statement issued from Limassol.
Moody??™s FSR upgrade recognises Doha Bank??™s improved financial fundamentals, a direct consequence of the ongoing improvements in the domestic operating environment and the bank??™s strengthened franchise.
In the past, the bank was primarily active in corporate banking and trade finance; however, over recent years it has revised its strategy and increased its focus on retail banking where growth potential is strong and margins remain high (personal loans now make up 51% of gross loans), it said.
Moody??™s noted Qatar??™s economy has been growing at very high rates, primarily due to high oil prices, and is expected to continue to do so over the medium term as its hydrocarbon and hydrocarbon-based exports multiply.
The country??™s high and increasing prosperity has had a flow-on effect on the banking sector and also allowed Doha Bank to improve its asset quality indicators with NPLs (non-performing loans) as a percentage of gross loans down from 16.5% in 2003 to 5.9% in June 2006, now fully covered by provision reserves, it added.
???Profitability and efficiency indicators have also improved considerably, even after adjusting earnings for what we consider to be non-recurring investment gains,??? the credit rating agency said.
The ???D+??™ FSR also considered the small size of the economy, its dependence on oil and state spending, and the existence of only a small number of large corporates that leads to significant funding and credit concentrations for the banking sector as a whole.
It highlighted that Doha Bank??™s NPLs ratio ???remains higher compared to some of its peers???, indicating that risk management systems and procedures require further strengthening.
Moody??™s said the aggressive loan growth over the past eighteen months coupled with the major correction of the Doha Securities Market may ???hide future asset quality issues???.
The upgrading of the foreign currency deposit ratings for Doha Bank to ???A2/P-1??™ from ???A3/P-2??™ is based on the strong likelihood of support from the Qatari authorities, should the need arise, it said.
Moody??™s believes that ???Doha Bank (along with the other leading Qatari banks) is very significant and important institution for the domestic banking system, and that a possible failure of any of them would lead to a systemic crisis.???
In the past, the Qatari authorities have supported domestic banks in difficulty without exception, and Moody??™s does not anticipate any change in that policy over the medium term, the statement added.