Fitch affirms Doha Bank at 'A'; outlook stable

The IDRs and Support Rating of DB reflect the extremely high probability of support from the Qatari authorities, if required, and the recent government measures to support the local banking sector. The Stable Outlook reflects Fitch's view that Qatar's credit fundamentals should remain strong.

The Individual rating takes into account DB's strong domestic franchise and good financial profile, particularly its current capitalisation levels. It also reflects tightening liquidity following rapid loan growth, and large asset and deposit concentrations.

Fitch believes that downside risks to the Individual rating have increased, due to potential deterioration in asset quality as the loan book seasons.

Despite the global financial crisis, DB has reported strong results with an operating ROAE of 22% and 28% in 2008 and Q109, respectively. High operating revenues were driven by rapid loan growth, mainly in H108, after which loan impairments and investment losses started to rise. Net fees, which were mostly recurring, formed a low 13% of operating income in 2008. Costs are well-controlled, with a cost/income ratio of 28% in Q109.

DB's exposure to credit risk primarily arises from its domestic retail and corporate lending activities. According to DB, the bank stopped real estate lending in Q308. At end-Q109, DB's impaired loans represented a reasonable 2.9% of total loans and were adequately covered by reserves. Fitch believes that NPLs will increase across the system in 2009 amid the prevailing economic downturn.

DB's exposure to market risk fell following the purchase in March 2009 by the Qatar Investment Authority (QIA) of the bank's portfolio of listed equities held in the available-for-sale portfolio.

DB is funded primarily by customer deposits, which grew 16% in 2008. However, deposits have been under pressure since mid-2008 due to the economic downturn and, since Q408, DB has been a net interbank borrower. Liquidity is still satisfactory, but tightening, with a loan-to-deposit ratio of 112.8% at end-Q109. Qatar has recently purchased real estate assets of domestic banks, which Fitch believes helps support DB's liquidity position.

At 11.1% at end-2008, DB's tier 1 capital ratio is adequate. In December 2008, DB approved a 20% capital increase to be subscribed by QIA, 5% of which was already subscribed in December 2008 with another 5% to be completed by end-2009.

Created in 1979, DB is Qatar's third-largest bank and offers a full product range including Islamic banking. The bank is listed on the Doha Securities Market. Its shareholders include members of the ruling family and other prominent Qatari investors.