QIIB’s first Additional Tier 1 (AT1) sukuk issuance that totalled QR1bn is “credit positive” for the leading Qatar-based Islamic bank, Moody’s Investor Service has said in a report. 
“This AT1 issuance is credit positive for QIIB because it reverses the recent declining capital trend of the Qatar-based Islamic bank following high growth during 2011-15, and will replenish the bank’s liquid assets amid tightening liquidity,” Moody’s Investor Service said. 
As a result of this issuance, Moody’s Investor Service estimates that QIIB’s reported capital adequacy ratio and Tier 1 capital will improve substantially to around 20% from 16.6% reported as of June 2016.
This level would significantly exceed the regulatory minimum for Tier 1 capital of 10% and minimum total capital of 12.5% (including a capital conservation buffer), the report noted. 
“The capital increase will provide the bank with a considerably stronger buffer to absorb potential losses as the economy slows and asset quality weakens.
“The additional capital will also support the bank’s continued balance-sheet expansion. The bank’s financing growth (analogous to loan growth at conventional banks) increased at a compound annual growth rate of 27% during 2011-14, well above Qatari banks’ average of 17% during the same period,”  Moody’s Investor Service said.
This, it said is consistent with the growth of Islamic assets in Gulf Cooperation Council countries overall, exceeding conventional asset growth rates and driving Islamic banks to source funding and capital through AT1 and other capital market sukuk issuances. 
“Although growth slowed to 14% during 2015, this growth had eroded QIIB’s capital buffers, leading to a drop of almost eight percentage points since 2011.
“We expect credit growth to decline further but remain robust at around 10% in 2016, underpinned by Qatar’s growing economy, where, despite lower oil and gas revenues, continued high government spending on infrastructure projects ahead of the FIFA World Cup in 2022 will continue to offer lending opportunities,” Moody’s Investor Service said.
A growth slowdown, when combined with the capital increase, will support strong and stable capital buffers over the next 12-18 months.
Beyond strengthening its capital base, Moody’s Investor Service expects that the issuance will increase QIIB’s “liquid assets balance”.
Liquidity has been reduced by the bank’s rapid financing growth and tightening liquidity in the region as a result of lower government oil revenues and associated deposits. 
The bank’s ratio of liquid assets to total assets declined to 28% as of December 2015 from 38% as of December 2012, but Moody’s Investor Service expects that QIIB’s “improved liquidity will provide solid buffers against persistent liquidity pressures as oil prices remain low”.