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By Satish Kanady
DOHA: Moody’s Investors Service has put at least five banks in Qatar under scanner along with seven others in the GCC to review for possible downgrade of their subordinated debt ratings.
The affected banking entities in Qatar include Qatar National Bank, Commercial Bank of Qatar, Doha Bank, Mashreq Bank PSC and First Gulf Bank.
Arab National Bank, Banque Saudi Fransi, Abu Dhabi Commercial Bank, Emirates NBD PJSC, Burgan Bank, Bank Muscat and BBK BSC are the other banks which have been placed on review for possible downgrade of the ‘junior debts’.
According to the ratings agency, an estimated $4bn of securities is likely to be affected in the worst scenario. The purpose of the ratings review is to assess the evolving risk profile of these subordinated debt instruments given the recent global and prudential trends towards imposing losses on junior creditors in the context of government support and implementation of Basel III.
While Moody’s continues to view government support for banks across GCC countries as high, its decision to initiate a review for possible downgrade of the 12 banks’ subordinated debt ratings is driven by the growing risk of ‘bail-ins’ for subordinated debt instruments. This is a result of Basel III guidelines on bank capital and regulatory efforts aimed at enhancing market discipline.
Moody’s expects Basel III will be implemented in all GCC countries over the next few years, requires that Tier 2 debt has loss-absorbing features that can be applied upon the provision of government support.
Although policy signals by GCC regulators on burden-sharing for subordinated debt instruments remain limited, Moody’s recognises that the local authorities, like their global counterparts, are generally keen to reduce the moral hazard that is present within such supportive systems. Moody’s rating review will therefore focus on the risk that local regulators and support providers may impose burden-sharing losses on holders of subordinated debt, which is increasingly the prevailing policy globally.
On its view on subordinated debt instruments, Moody’s noted recently that throughout the 2008 financial crisis governments have extended support to the banks to stabilise their credit quality. However, recently governments have shifted away from full creditors’ protection. Moody’s assesses that the policy shift has potential near-term implications for some 177 banking entities globally.
In its February 2011 note, Moody’s said that the ratings of at least two banks in Qatar with outstanding subordinate debt are being benefitted from government support.
The affected ratings include QNB Finance Limited’s long-term global foreign currency subordinated debt programme rating of (P)A1; Doha Finance Ltd (Doha Bank QSC) long-term global foreign currency subordinated debt programme rating of (P)A3; Doha Bank’s long-term global foreign currency subordinated debt rating of A3 and (P)A3; Commercial Bank of Qatar’s long-term global foreign currency subordinated debt programme rating of (P)A2; CBQ Finance Limited (Commercial Bank of Qatar) long-term global foreign currency subordinated debt rating of A2 and (P)A2; and Mashreq Bank’s long-term global foreign currency subordinated debt rating of Baa3; and long-term global foreign currency subordinated debt programme rating of (P)Baa3.
Banking analysts in Doha sought to play down Moody’s decision on the banking entities in Qatar. “All the banks in Qatar are adequately capitalised. Given their strong balance sheet,the banks in Qatar do not face any systemic risk”, a top executive of one of the affected banks told The Peninsula.
DOHA: Banks in Qatar are well capitalised and gearing up to meet Basel III requirements both in terms of capital adequacy and liquidity management. The dynamics are different in this region, more specifically in Qatar, Dr R Seetharaman, CEO of Doha Bank Group told The Peninsula.
On Moody’s decision, he said the Qatari banking system has been efficiently performing pre and post financial crisis. The government of Qatar took pro-active measures by acquiring large stakes in all local banks to ensure efficient functioning and the banks have been consistently reporting good performance.
“In any case, the subordinated debt, which is under review, forms a very insignificant percentage of the overall liability of the banks. Hence, it is my view that there is no change in the operating environment for the banking industry in Qatar, unlike in other parts of the world where the governments have been questioned for bailing out banks. We are also of the opinion that Moody’s review process should not logically, negatively impact the ratings of the subordinated debts issued by Qatari banks,” he said. The Peninsula