Fitch affirms Ahli Bank QSC at 'A-'; outlook stable

ABQ's IDRs, Support Rating and Support Rating Floor reflect Fitch's view that there would be an extremely high probability of support for the bank from the Qatari authorities if needed. Fitch bases its expectation of support on the Qatari authorities' strong ability and propensity to maintain confidence in a relatively small banking system. The authorities have a history of providing support, as a pre-emptive measure to protect the banking system. ABQ would also look to its main shareholder, Bahrain-based Ahli United Bank BSC (AUB, 'BBB+'/Stable) for support if needed.

The IDRs, SR and SRF are sensitive to any change in Fitch's view of the ability or willingness of the Qatari authorities to support ABQ. The Stable Outlook reflects Fitch's view that any such changes are unlikely at present.

The VR reflects the bank's solid profitability, adequate liquidity and sound capital. In many respects, ABQ's balance sheet strength and performance are compatible with a higher VR. The constraint is mainly a result of the bank's still small franchise, the consequent level of concentration on both sides of the balance sheet, and its exposure to potentially higher risk sectors, such as real estate.

ABQ's profitability ratios continued to improve in 2011 and although slightly weaker in H112, still compare reasonably well with peers. Costs remain well controlled. Loan impairment charges absorbed only a relatively moderate 12% of pre-impairment operating profit in 2011 and recoveries exceeded the impairment charge in H112, resulting in a slightly higher yoy net profit.

Loan quality remains sound, although impaired loans increased from their level at end-2011, reaching QAR481m, around 4% of the loan book. The increase in H112 was due to a single exposure that the bank expects to resolve shortly. Reserve coverage was satisfactory at around 76%. Fitch does not expect any significant weakening in loan quality, given the Qatari economy's relatively healthy economic outlook and growth prospects.

The bank is deposit funded and liquidity is satisfactory. Around one- third of deposits are retail, and one-quarter from government entities. The deposit base is concentrated, but historically has proved stable, mitigating concentration risks. Liquid assets consisting of government securities and interbank placements accounted for almost one-third of assets at end-H112.

ABQ is well capitalised, especially following the Qatar Investment Authority's (QIA) capital injections totalling QR642m. The capital injections, which took place during 2009 and 2011, were part of sector-wide capital injections to Qatari banks and resulted in the QIA becoming ABQ's second-largest shareholder with a 16.7% stake. Fitch core and Tier 1 capital remained strong at 21.2% and 17.4% respectively at end-H112.

Upside to the VR could arise if the bank successfully carries out its growth plans, while maintaining its focus on asset quality. The VR is sensitive to a material weakening of asset quality or tightening liquidity, neither of which Fitch considers likely.

The rating actions are as follows:
Long-term IDR affirmed at 'A-'; Stable Outlook
Short-term IDR affirmed at 'F2'
Viability Rating affirmed at 'bbb-'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A-'.