Fitch affirms Commercial Bank of Qatar at IDR 'A'; Outlook Stable

The Support Rating Floor is affirmed at 'A'. The Outlook for the Long-term IDR is Stable.

The IDRs are support driven and reflect the extremely high probability of support available to CBQ from the Qatari authorities, if ever required, given the bank's systemic importance and the Central Bank's willingness and ability to maintain confidence in the local market. The Individual rating considers CBQ's solid domestic franchise and continuing strong earnings. It is constrained by large concentrations in loans and deposits, fast asset growth and narrowing capital ratios.

CBQ continues to perform extremely well under buoyant operating conditions in Qatar. Loan volumes have grown rapidly, leading to robust core income generation. Results were also boosted by strong contributions from Islamic banking and its associate, National Bank of Oman, underlying the success of CBQ's diversification and regional expansion strategy. CBQ's asset quality is sound, with its NPL ratio less than 1%. Fast loan growth, as seen in the last three years, could lead to future problem assets, although, at this stage, a material change from this position is unlikely.

Fitch notes some declines in market values on CBQ's investments due to lower stock market valuations and the global credit downturn. However, recent performance of Qatar equities and the relatively small size of the 'at risk' part of the portfolio should mean that these exposures are manageable. Liquidity is ample, benefiting from a stable deposit base and large holdings in government bonds and other marketable securities.

'Further pressure on capital ratios is Fitch's main concern, particularly with CBQ's planned acquisition of UAE-based United Arab Bank for a reported $600m, around 4.5 times book value,'

says Mahin Dissanayake, Associate Director in Fitch's Financial Institutions team. 'It's therefore positive that the bank has plans to strengthen capital via several viable options in the debt and equity markets in 2008-09, which should be achievable given CBQ's status as a leading Qatari bank'.

CBQ is Qatar's second-largest bank by assets, representing a 17% market share. It is a full service bank, operating a network of 25 branches and a range of alternative delivery channels. During 2007, CBQ announced an investment in UAE-based United Arab Bank, as part of its strategy of establishing a regional presence following its successful investment in National Bank of Oman in 2005. Listed on the Doha Securities Market, CBQ's main shareholders include leading Qatari merchant families and individuals, with no individual owning more than 5% of equity. The bank reported a net profit of QAR1bn for the nine months to end-September 2007, ahead of the full year figure for 2006.