CEEMEA Credit. Credit Strategy. Qatari Banks: As Withdrawals Peak, Attractive Entry Points Arise OVERVIEW. TRIEU PHAM Associate.

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1 Credit Strategy TRIEU PHAM Associate This publication should not be v iewed as a personal recommendation within the meaning of the Financial Conduct Authority rules. CEEMEA Credit CEEMEA T: +44 (0) E: trieu.pham@mufgsecurities.com 6 September 2017 MUFG Securities A member of MUFG, a global f inancial group IMPORTANT DISCLOSURE When distributed by MUSA: This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This report may not be independent of MUSA s and/or its Credit Strategy Affiliates proprietary interests. MUSA and/or its Credit Strategy Affiliates trades the securities covered in this report for its own account and on a discretionary basis on behalf of certain clients. Such trading interests may be contrary to the recommendation(s) offered in this report. MUSA s Credit Strategy Affiliates are MUS(EMEA) and MUS(ASIA). Please see the analyst certification and important disclosures at the end of this report. Qatari Banks: As Withdrawals Peak, Attractive Entry Points Arise OVERVIEW With 3 months into the political crisis between Qatar and several Middle Eastern neighbours, EM investors remain mostly concerned on the potential outfall for the banking system due to the large net foreign liability position (QAR 155bn/USD 42bn in June). Since the onset of the crisis, we have therefore seen meaningful withdrawals of deposit and interbank placements (combined QAR 82bn / USD 22bn in June and July) while recent headlines have also focussed on Qatari banks wholesale funding exposure. With bank balance sheet statistics available for June and July, we have assessed the funding profile and asset quality trends. On the funding side, we think that withdrawals by impacted GCC (Saudi Arabia, UAE and Bahrain) have now peaked and the situation remains manageable. QCB and public sector offset non-residential withdrawals: We have seen a meaningful shift in June and July, with falling nonresidential and private deposits being offset by an increase in public sector deposits. Interbank funding has been equally impacted by outflows, with those having been balanced by a 10-fold increase in QCB deposits. Withdrawals by Impacted GCC have likely already peaked: With c. 8% of total liabilities coming from other GCC (ex-qatar), we think that the amount of withdrawals at risk stood around QAR 92bn in May. In the two months since, QAR 82bn of non-residential liabilities have left the system and we think that the majority was withdrawn by impacted GCC. We therefore think that the residual amount at risk stands in the QAR 10-30bn range (USD 3-8bn). Withdrawals from other international investors (non-gcc) remain a risk, but those haven t occurred in a meaningful amount until now. Supportively, we have seen outflows from non-residential counterparts slowing down in July (vs. June). Wholesale funding market remains in the spotlight: Maturities of loans, debt securities and CD/CPs over the next year amount to c. QAR 85bn (USD 23bn) over the next year, according to our calculation. In line with recent headlines, we think that Qatari banks will return to the loan or debt/sukuk markets later in the year. We think that those markets remain challenging and new issuance will come at a higher cost, but see small positive signs with QIB having recently reopened the private placement market. Qatari banks have strong buffers to offset withdrawals: Cash (excl. required reserves), deposits/placements with overseas banks and foreign securities add up to c. QAR 72bn (USD 20bn) as of July which 1

2 covers deposit and interbank outflows we have projected and parts of the wholesale funding maturities over the next year. Further measures include a partial sale of assets (such as loan books in the impacted GCC ) or even affiliates/subsidiaries. The repo facilities of the QCB and international counterparties provide a useful tool for short-term liquidity management. Nonetheless, withdrawals/roll-offs could lead to a significant drag on liquidity if not compensated otherwise. Government support: assumptions bolster confidence in banks: We continue to see government support as very likely in case of need, given the importance of the financial sector, the partial/majority Qatari government ownership across the system and a proven history of support. While the support ability could decrease somewhat, the situation will in our opinion remain manageable as withdrawals will occur in a gradual manner. Most notably however, we consider the assumption of government support as a strong driver in confidence in Qatari banks. While funding is in the spotlight, we think that asset quality is similarly important as the crisis will lead to greater divergence among the banks: Economic growth is impacted by crisis but remains resilient: While Qatar s main economic sector, hydrocarbons, remains impacted by the low oil/gas price environment, the crisis didn t have any impact with key LNG export clients located in Asia. Nonetheless, growth will decline due to some fiscal consolidation, import disruptions, weaker confidence levels and potential delays in the construction sector. Loan growth will shift towards public sector: Loan growth has remained solid despite the crisis and temporary drop in June. Going forward, further growth is likely more subdued but we will likely also see a shift of loan books towards the public sector due to ongoing infrastructure projects. Asset quality is key amid crisis but will weaken only modestly: According to our conversation with banks and reflected by the 2Q quarterly reports, there have not been any unusual or major deterioration in overall asset quality so far. That said, we think that some segments could see a moderate weakening as the economic outlook softens. Generally, we think that banks with a higher public sector exposure will fare better in terms of NPL ratio (due to limited NPL inflows and more rapid loan growth) while we think that there will be upward pressure driven by the real estate, contracting and retail segments. Recent events point to a prolonged stand-off between Qatar and the Saudi-led group of countries. While there is a limited impact on the Qatari economy and fiscal balance sheet, the financial system poses the key risk given the large net foreign liability position of the banking system. In our opinion, the current levels of Qatari bank credit sufficiently incorporate those risks and therefore pose an attractive entry point. Most notably, we think that the majority of non-residential withdrawals have now materialised, with further outflows likely to be gradual and offset by public sector injections in case of need. We also highlight that Qatari bank credit looks attractive compared to global peers and have room to retighten vs. the Qatari sovereign curve. Among those, we currently favour lenders with stronger fundamental metrics such as Qatar National Bank (QNB; Aa3 neg/a RWN/A+ neg) and Qatar Islamic Bank (A1 neg/a- RWN/A neg). Our top picks are QNBK 07/21 floaters (Aa3/NR/A+) and QIBKQD 2.754% 20s (NR/NR/A). 2

3 CHART 1: DEPOSITS OF QATARI BANKING SYSTEM FUNDING QCB AND PUBLIC SECTOR OFFSET NON-RESIDENTIAL WITHDRAWALS In the first two months of sanctions and boycott measures from Saudi Arabia, the UAE, Bahrain and Egypt, we have seen a meaningful shift on the funding side of Qatari banks (according to QCB monthly statistics for June and July; see Table 2). While most had rightly expected a downfall in non-residential deposits and interbank funding, the withdrawals have gone beyond overseas liquidity to also affect private deposits and local interbank placements. The drawdown however has almost fully been offset by significant increases by the public sector and QCB deposits. Deposits (QAR 772bn / 67% of total liabilities) Source: QCB, MUFG (as of Jul-17) CHART 2: INTERBANK FUNDING OF QATARI BANKING SYSTEM Total deposits across the Qatari banking system climbed by 1% vs. May (QAR +10bn/USD +3bn; see Table 1). Divided by segment, we saw a 15% drop in non-residential deposits (QAR -27bn/USD -7bn). Private deposits fell by 8% (QAR -29bn/USD -8bn), driven by retail (QAR -5bn) and other sectors & activities (QAR -15bn) which we think partly reflects Qatari operations of foreign corporates. This was however more than offset by a meaningful 33% increase in public sector deposits (QAR +66bn/USD +18bn). Interbank/QCB funding (QAR 244bn / 21% of total liabilities) Funding from banks and QCB altogether dropped by 9% over the two months (QAR -25bn/USD -7bn). While the statistics include syndicated and bilateral loans (QAR 69bn), overall interbank funding has a shorter-term maturity nature and is mostly non-residential (74% of total interbank funding vs. 87% in May) when compared to deposits. Local and non-residential bank placements dropped by 19% and 23%, respectively, while we saw a spike in QIBOR rates (3-month rates peaked at 2.6% in end-july vs. average of 1.9% over last year; see Charts 9-10 in Appendix). With external and local liquidity drying up, the QCB has replaced a significant part and funds owed to the QCB therefore increased by more than 10x (QAR +36bn/USD +10bn) during the two months. Source: QCB, MUFG (as of Jul-17) TABLE 1: DEPOSITS BY SEGMENTS OF QATARI BANKING SYSTEM Sector / as of July July June Subdivision Total %Total mom mom Residential 615,326 80% 15,250 22,443 Government 97,639 13% 11,560 12,841 Industry 22,294 3% Trading 38,317 5% 2,780-3,325 Services 242,703 31% ,047 Contractors 12,788 2% -1, Real Estate 9,334 1% Personal 159,163 21% 2,169-6,781 Other 33,087 4% ,616 Non-Res 157,152 20% -13,478-13,949 Government 6,862 1% Industry 1,476 0% ,927 Trading 5,830 1% Services 121,488 16% -9,610-18,432 Contractors 1,129 0% Real Estate 69 0% Personal 749 0% Other 19,548 3% -2,508 7,014 Total 772, % 1,772 8,494 Source: QCB, MUFG (as of Jul-17) Debt Securities (QAR 49bn / 4% of total liabilities) Given the generally longer-term maturity of debt, we have not seen any significant changes so far (-3%). 98% of debt securities are of non-residential nature. TABLE 2: FUNDING OF QATARI BANKING SYSTEM Funding Deposits Due to Banks / QCB Debt Secs Total Public Private Foreign Local Foreign QCB QAR mn 185, , ,224 36, ,339 9,075 52,502 1,033,621 Dec-16 % 18% 35% 18% 4% 20% 1% 5% 100% QAR mn 200, , ,580 30, ,487 3,366 50,410 1,081,431 May-17 % 19% 35% 17% 3% 22% 0% 5% 100% Jun-17 Jul-17 QAR mn 242, , ,630 18, ,725 34,210 51,014 1,067,328 % 23% 34% 16% 2% 18% 3% 5% 100% QAR mn 266, , ,152 25, ,929 38,952 49,094 1,065,510 % 25% 33% 15% 2% 17% 4% 5% 100% Δ vs. Dec-16 Δ vs. May-17 Δ vs. Jun-17 43% -3% -14% -32% -14% 329% -6% 3% 33% -8% -15% -19% -23% 1057% -3% -1% 10% -3% -8% 34% -7% 14% -4% 0% Source: QCB, MUFG excludes other liabilities (as of Jul-17) 3

4 WITHDRAWALS BY IMPACTED GCC HAVE LIKELY ALREADY PEAKED Qatari banks remain the largest foreign borrowers among the GCC banking systems, with foreign deposits currently amounting to QAR 157bn (USD 43bn; 20% of total deposits) and placements from foreign banks amounting to an even higher QAR 180bn (USD 49bn; 74% of total due to banks). Further outflows are most likely driven by impacted GCC countries, with Bloomberg reporting on Aug 3 that several banks based in Saudi Arabia, the UAE, Bahrain and Egypt have decided to roll-off their deposits at Qatari counterparts in order not to face potential repercussions for doing business with Qatari entities. Already on Jun 9, the UAE central bank had ordered local banks to conduct enhanced due diligence for any accounts held with QNB, QIIB, Barwa Bank, Masraf Al Rayan and Doha Bank. In our analysis, we assume that banks and depositors from the countries above will withdraw all their funds over the medium-term. While there is a lack of recent data, the FY16 annual reports shed some light on the relevance of other GCC funding (i.e. ex-qatar). Using a weighted average of data by 6 banks (Barwa Bank, CBQ, Masraf Al Rayan, QIB, QIIB and QNB), we found that 6%, 25% and 8% of deposits, due to banks and total liabilities (excl. equity) derive from other GCC, respectively. TABLE 3: GEOGRAPHICAL CONCENTRATION OF TOTAL LIABILITIES Liabilities Barwa CBQ MAR QIB QIIB QNB Avg Qatar 87% 59% 84% 69% 84% 43% 54% Other GCC 4% 11% 9% 24% 14% 4% 8% Europe * 8% 21% 6% 7% 0% 36% 26% Others 1% 8% 1% 1% 2% 17% 12% Source: Banks, MUFG (as of FY16) Others incl. Europe for Doha; * incl. Turkey Based on pre-crisis total liabilities of QAR 1.2bn (as of May), the departure of all other GCC funds (8% of total liabilities) would put QAR 92bn (USD 25bn) at risk as of May and we think that the majority of withdrawals have already materialised in June and July: Indeed, non-residential liabilities decreased by QAR 82bn (USD 22bn) in the two months, respectively. Assuming that the decrease in non-residential liabilities was largely driven by the impacted GCC countries, the residual amount at risk should be in the teens or twenties of billions (QAR). There is undeniably a risk that withdrawals go beyond other GCC to also affect deposits and funds by other third-party non-gcc investors (e.g. Europe or Asia). In our conversations with the banks, we were told that there have been no major withdrawals from those so far. The amount at risk calculated above provides a rough guidance rather than an exact figure as the geographical segmentation has likely changed over the year. Moreover, it should be noted that the banks provide consolidated numbers (incl. those of subsidiaries) while the QCB data only includes Qatar branches. As international subsidiaries have lower exposure to GCC funding, the share of other GCC is likely understated. On the other hand, other GCC also includes Kuwait and Oman which have a neutral role in the crisis. All in all, the QCB statistics over the last two months indicate that withdrawals have largely materialised and peaked within the first two months. In line with this, we have seen a slowdown in withdrawals in July, with non-residential liabilities decreasing by QAR 27bn (vs. QAR 56bn in June). We think that the residual amount of withdrawals by impacted GCC could range in the low double-digit billions in QAR (around QAR 10-30bn / USD 3-8bn). 4

5 WHOLESALE FUNDING MARKET REMAINS IN THE SPOTLIGHT Recent headlines have shifted the focus on wholesale funding exposures (capital markets, CD/CPs, loans), with CBQ and Doha Bank reportedly planning to raise funds from a syndicated loan or private placements, while QNB is said to explore different options including a USD bond transaction. In comparison to the deposit and interbank market, the wholesale funding market is characterised by fewer transactions and less counterparties, however much larger sizes on average which increases the refinancing risk once a maturity comes due. In the following table, we have analysed the exposure of the 10 Qatari conventional and Islamic banks: TABLE 4: WHOLESALE FUNDING EXPOSURES OF QATARI CONVENTIONAL BANKS Bank Programme Description Ahli Bank Qatar (QAR 1.0bn due w ithin 1yr) Al Khalij Commercial Bank (QAR 2.5bn) Commercial Bank of Qatar (c. QAR 3bn) Doha Bank (QAR 3.5bn) International Bank of Qatar (none) Qatar National Bank (QAR 69.1bn) Bonds CD Loans Bonds Loans Bonds Loans/CD/CP QAR 3.6bn, thereof USD 500mn (QAR 1.8bn) maturing in Apr 2021 and Feb 2022 each USD 50mn (QAR 182mn) Tier 2 MTN subs maturing in Dec 2017 QAR 766mn (vs. QAR 2.1bn in 1Q17) Recently established a new USD 0.5bn ECP and CD programme QAR 2.3bn, thereof none maturing w ithin 1yr QAR 3.9bn, thereof QAR 1.6bn of PPs maturing w ithin 1yr and USD 500mn (QAR 1.8bn) maturing in Oct 2018 QAR 915mn, all maturing w ithin 1yr QAR 7.7bn, thereof USD 750mn (QAR 2.75bn) maturing in Jun 2019 and Jun 2021 each and USD 600mn (QAR 2.2bn) Tier 2 subs maturing in Nov 2019 c. QAR 9bn, thereof c. QAR 3bn maturing w ithin 1yr, includes QAR 0.5bn CP outstanding (QAR 5bn CP/CD programme) Other USD 250mn (QAR 0.9bn) ABank notes guaranteed by CBQ maturing in Jul 2019 Bonds CD/CP Loans QAR 381mn, thereof none maturing w ithin 1yr None (USD 3bn CD+USD 2bn CP programmes) QAR 5.9bn, thereof QAR 3.5bn maturing w ithin 1yr Bonds QAR 1.8bn, thereof all (USD 500mn) maturing in Nov 2020 Bonds CD/CP QAR 40.0bn, thereof QAR 21.1bn (incl. PPs & USD 1bn in Feb 2018) maturing w ithin 1yr QAR 37.0bn Loans QAR 20.7bn, thereof QAR 11.0bn maturing in Mar 2018 Source: Banks, MUFG (as of 2Q17) excluding perpetual subdebt TABLE 5: WHOLESALE FUNDING EXPOSURES OF QATARI ISLAMIC BANKS Bank Programme Description Barw a Bank (QAR 1.4bn) Masraf Al Rayan (None) Sukuks None QAR 2.2bn, thereof QAR 1.4bn of PPs maturing w ithin 1yr None Qatar Islamic Bank (QAR 2.7bn) Sukuks QAR 9.6bn, thereof USD 750mn (QAR 2.7bn) maturing in Oct 2017; issued AUD 20mn (QAR 58mn) and JPY 2bn (QAR 67mn) in private placements on Aug 9 Qatar International Islamic Bank (QAR 2.5bn) Sukuks QAR 2.5bn, thereof all (USD 700mn) maturing in Oct 2017 Source: Banks, MUFG (as of 2Q17) excluding perpetual sukuk borrowing According to our analysis, banks wholesale funding maturities (excl. short-term placements) due within the next year add up to a total of c. QAR 85bn (USD 23bn). The largest bulk (c. 80%) is unsurprisingly owed by QNB. We also note that Islamic banks are less active in the wholesale market and only exposed to the international investor base through their trust certificate programmes (sukuks). 5

6 With several larger private placements, bonds/sukuks (USD 750mn for QIB in Oct 2017, USD 700mn for QIIB in Oct 2017 and USD 1bn for QNB in Feb 2018) and syndicated loans (USD 575mn for Doha Bank in Dec 2017 and USD 3bn for QNB in Mar 2018) maturing, Qatari lenders are likely to return to the loan and debt capital markets in the near or medium term. We think there are signs that the (syndicated) loan market remains somewhat challenging. While Reuters reported on Aug 13 that Saudi Arabia, the UAE, Bahrain and Egypt have reassured the US Department of State that companies would not be discriminated against if they did business with Qatari entities, it is possible that a number of international banks will remain reluctant as long as the crisis remains in a deadlocked position. The precautionary stance is also reflected by a Bloomberg report in mid-august saying that international banks have asked for collateral outside of Qatar (instead of domestic ones) for shortterm funding. With regard to the international debt capital markets, we think that Qatari banks are able to tap the primary market but will have to pay up in yield compared to pre-crisis levels. This is reflected by secondary market trading levels (65bps wider on average vs. Jun 1). Some uncertainty arises from the likely lower involvement by GCC investors (see Appendix for bond stats of previous deals), removing a key technical that has kept spread levels tight and volatility low in the past. Lastly, downgrade risk might constrain some investors: According to Fitch, exposure of European prime money market funds to Qatar has dropped to 0.8% in 2Q17 (vs. 1.6% in 1Q17) due to externally imposed constraints (rating) or liquidity concerns. We consider it as a small positive signal that QIB placed two private placements with a combined amount of USD 34mn (QAR 125mn) in JPY and AUD in early August. Private placements will remain an attractive alternative for public transactions. QATARI BANKS HAVE STRONG BUFFERS TO OFFSET WITHDRAWALS In order to offset the withdrawals, banks can rely on a handful of options and those include (data as of July): Cash and deposits with the QCB: Qatari lenders held QAR 9.5bn in cash and QAR 39bn at the QCB, thereof QAR 35bn as required reserves. Assuming the required reserve ratio would be maintained at 4.5%, this would leave banks with QAR 13bn (USD 4bn). Placements with banks: Qatari lenders have an exposure of QAR 84bn (USD 23bn) to overseas and QAR 34bn (USD 9bn) to domestic competitors. Already in June and July, we saw a drawdown on placements in foreign banks (QAR -18bn or -18%). That said, Qatari banks are likely to be wary of drawing down all placements in order to maintain relationships with international counterparts. Assuming that Qatari banks would withdraw all demand and call deposits (QAR 9.1bn) as well as placements (QAR 29bn) with overseas banks, lenders could shore up QAR 38bn (USD 10bn) in liquidity. TABLE 6: GEOGRAPHICAL CONCENTRATION OF INTERBANK LENDING Due from Banks ABQ AKCB Barwa CBQ Doha MAR QIB QIIB QNB Avg Qatar 47% 70% 39% 31% 42% 28% 48% 88% 6% 28% Other GCC 16% 10% 35% 11% 23% 35% 31% 5% 17% 18% Europe * 16% 7% 0% 39% NA 36% 11% 3% 49% 32% Others 20% 13% 26% 20% 35% 1% 10% 3% 28% 22% Source: Banks, MUFG (as of FY16) Others incl. Europe for Doha; * incl. Turkey 6

7 CHART 3: QCB REPO UTILISATION Securities: Foreign and domestic securities portfolios stood at QAR 20bn (USD 6bn) and QAR 149bn (USD 41bn), respectively. So far, banks have not reduced their holdings, with most holdings in debt and sukuks (96%). With regard to Qatari sovereign bonds and sukuks (QAR 129bn or 86% of domestic investments), those can be pledged as collateral for the repo facility of the QCB (QAR 129bn). In June, the value of repo transactions increased to QAR 44bn (62 transactions) vs. QAR 8bn from Jan-May (10 transactions). Moreover, banks are likely more willing to reduce their foreign holdings (QAR 20bn) although potentially with a loss. TABLE 7: GEOGRAPHICAL CONCENTRATION OF SECURITIES PORTFOLIO Source: QCB, MUFG (as of Jun-17) Securities ABQ AKCB Barwa CBQ Doha MAR QIB QIIB QNB Avg Qatar 90% 93% 84% 78% 84% 92% 82% 91% 47% 68% Other GCC 9% 5% 11% 6% 13% 5% 6% 6% 6% 7% Europe * 0% 1% 0% 14% NA 2% 3% 0% 19% 10% Others 1% 1% 4% 2% 3% 1% 9% 4% 27% 14% Source: Banks, MUFG (as of FY16) Others incl. Europe for Doha; * incl. Turkey Loans/financing: Loans represent 68% of the banks total assets, with distributed credit in Qatar standing at QAR 796bn (USD 217bn) and outside at QAR 95bn (USD 26bn). With the LtD ratio remaining stretched (115% in July), a contraction in funding unless matched by rising public sector deposits, might constrain further loan growth. Qatari banks however could sell some of their nonresidential loans and assets. In mid-july, Doha Bank was reportedly planning to sell some of its UAE assets to local lenders at discounted rates to generate local-market liquidity. Other GCC represents c. 6% of the loan book (see Table 8 below) which would equal c. QAR 53bn (USD 14bn). A sale would however very likely result in a loss. TABLE 8: GEOGRAPHICAL CONCENTRATION OF LOAN PORTFOLIO Loans ABQ AKCB Barwa CBQ Doha MAR QIB QIIB QNB Avg Qatar 100% 64% 74% 77% 74% 84% 86% 97% 68% 74% Other GCC 0% 22% 11% 3% 16% 0% 5% 0% 3% 5% Europe * 0% 5% 12% 19% NA 10% 8% 3% 19% 14% Others 0% 9% 4% 1% 10% 5% 1% 0% 10% 7% Source: Banks, MUFG (as of FY16) Others incl. Europe for Doha; * incl. Turkey In total, Qatari banks have strong buffers to counterbalance withdrawals, including QAR 13bn in cash, QAR 38bn in deposits/placements with overseas banks and QAR 20bn of foreign securities which add up to c. QAR 72bn (USD 20bn) as of July. Those very likely cover potential deposit and interbank fund withdrawals by impacted GCC going forward. Moreover, individual banks have been also reported to consider a sale of their loan books in the impacted countries. Lastly, banks have a meaningful amount of sovereign bonds that can be used as repo with the QCB or other counterparties. Nonetheless, withdrawals will see liquidity buffers decline meaningfully over time if not compensated for by other fund inflows. 7

8 GOVERNMENT SUPPORT ASSUMPTIONS BOLSTER CONFIDENCE IN BANKS As we highlighted above, the public sector was key in offsetting withdrawals by nonresidential deposits while the QCB has boosted its balances with local banks. We think that further deposit inflows are likely to come from the public sector rather than from the QCB. Most notably, QCB international reserves dropped by QAR 38bn (USD 10bn) or 30% in June as the central bank reduced it balances with foreign banks (-11% or QAR -4.6bn) and security holdings (-40% or QAR -33bn) in favour of local bank placements. While international reserves remain sufficient at QAR 90bn (USD 25bn), continuous declines could dent confidence in the riyal peg. We therefore expect further withdrawals to be offset through deposits from government entities, notably the Qatar Investment Authority (QIA). In our opinion, the Qatari government would stand ready as a lender of last resort in case wholesale funding markets prove challenging. We understand that the government has asked banks to seek international funding instead of relying on support at this time, but don t think that this im plies a weakening willingness. We highlight the importance of the financial sector for the Qatari economy (10% of nominal GDP in 2016) as well as the Qatari government ownership across the system (15-55% in each). Moreover, the Qatari government has continuously supported domestic lenders throughout the financial crisis in 2008 and 2009, with none having defaulted on debt or deposit obligations to date. TABLE 9: HISTORY OF STATE SUPPORT IN QATAR Date October 2008 March 2009 June 2009 Measures QIA announces plan to acquire equity stakes of 10-20% in each listed domestic bank Government proposes purchase of domestic equity portfolios ow ned by 7 local banks Government completes USD 2.7bn purchase of real estate financings and other exposures of local banks Source: QIB, Bloomberg, MUFG While willingness to support remains very high, there is no doubt that the ongoing crisis (through higher financing costs and import costs), the low oil/gas price environment and high expenditures (ahead of the FIFA World Cup in 2022) will weaken the fiscal balance sheet and potential support ability. The latest IMF forecast (Aug 30) sees a central government budget deficit of 5.9% of GDP this year. Recent statements (QCB governor on Jul 10) and assessments put the QIA reserve assets at around USD 300bn (QAR 1,100bn) which would conveniently cover the deposit/interbank funding withdrawals in our scenario and wholesale funding maturities over the next year. Nonetheless, there is some uncertainty on how much would stand readily available, with some assets likely to be illiquid and/or domestic (Qatari Diar, Qatar Airways, local banks) while others are large and/or strategic (17% in Volkswagen, 10% in Rosneft). Assuming withdrawals as per our scenario analysis of let s say QAR 20bn and no rollover of wholesale funding over the next year (QAR 85bn due), the Qatari government would have to provide around QAR 105bn (USD 28bn) to offset the impact, c. 10% of the assumed QIA asset base. We think that this should be manageable, not least given that withdrawals and roll-offs will be spread over the year. More importantly, the existence of the sovereign wealth fund should further bolster confidence in the Qatari banking system and the riyal peg which should allow lenders to raise funds through other options (albeit at a higher price). That said, an element of uncertainty will persist and pressure could arise in case of a scenario that would see accelerated withdrawals. 8

9 ASSETS ECONOMIC GROWTH IS IMPACTED BY CRISIS BUT REMAINS RESILIENT The key driver for the Qatari economy remains the hydrocarbon sector which accounts for just about 30% of nominal GDP and has been unaffected by the current crisis (petroleum gas exports climbed by 7.8% yoy in July). With the ongoing crisis however going into its third month, some fiscal consolidation, import disruptions (imports dropped by 35% yoy in July) and potentially lower investments (incl. potential delays in the construction sector) will see non-oil growth soften to 4.6% in 2017 (vs. 5.6% in 2016; according to IMF). This will be somewhat offset by fiscal spending on infrastructure projects ahead of the FIFA World Cup in The most recent Bloomberg survey sees this year s GDP growth at 2.5% (vs. 3.1% in previous survey) although recovering to 3.2% (vs. 3.2%) next year. Despite the recent downward adjustment, growth remains higher vs. GCC peers. Inflation pressure has remained subdued (+0.8% and +0.2% yoy in June and July, respectively) although there has been some upward pressure in food & beverages (+2.4% and +4.5%) and transport inflation remains relatively high (+8.9% and +7.5%). TABLE 10: CREDIT BY SEGMENTS OF QATARI BANKING SYSTEM Sector / as of July July June Subdivision Total %Total mom mom Residential 795,795 89% 16,144-5,331 Government 169,018 19% 13,573-15,946 Industry 24,922 3% 2, Trading 71,074 8% 531 1,807 Services 171,481 19% -1,211 3,891 Contractors 40,963 5% Real Estate 186,616 21% 1,744 2,138 Consumptio 122,067 14% ,121 Other 9,655 1% -1,594 1,505 Non-Res 95,415 11% -1, Government 615 0% Industry 6,172 1% Trading 9,267 1% Services 67,620 8% Contractors 2,216 0% Real Estate 6,968 1% Consumptio 527 0% 3 0 Other 2,031 0% Total 891, % 14,463-4,771 Source: QCB, MUFG (as of Jul-17) LOAN GROWTH WILL SHIFT TOWARDS PUBLIC SECTOR While loan books initially declined in June by 0.5% led by the public sector (-4.2%), those have returned to pre-crisis levels since. Overall loan growth in July was 1.6%, taking year-to-date loan growth to 6.2%.Going forward, we think that loan growth will remain more subdued driven by supply (non-residential funding withdrawals and already stretched LtD-ratios of 115%) and demand (modest temporary slowdown in economic growth due to ongoing crisis).that said, the larger Qatari banks have recently seen a stronger pipeline from the public sector which we think are linked to ongoing infrastructure projects ahead of the FIFA World Cup in The public sector (incl. government/soes and semi-soes) currently accounts for 37% of the loan book. 9

10 ASSET QUALITY IS KEY AMID CRISIS BUT WILL WEAKEN ONLY MODESTLY We highlight that banks balance sheet are little directly exposed to the hydrocarbon sector but remain largely either exposed to the government (notably QNB) or to the services and real estate sectors. CHART 4: LOAN / FINANCING PORTFOLIOS OF SELECTED QATARI BANKS Source: Banks, MUFG ABQ/IBQ/QIB as of 4Q16, AKCB as of 1Q17, CBQ/Doha Bank/QNB as of 2Q17 According to our conversations with the banks, there haven t been any unusual or major deterioration in terms of overall asset quality since the start of the crisis which is reflected by the 2Q statements. Generally, the banks fundamentals are relatively strong and NPL ratios remain relatively low compared to other banking systems although we have seen very modest upward pressure over the last few quarters. Going forward, we would remain mindful of the real estate, contracting and retail segments which are more prone to the low oil price environment and an economic slowdown. The former two segments might also face cost pressure or disruptions from the ongoing crisis. On the other hand, we think that banks with a strong exposure to the government or the public sector will be in a more favourable position, due to more limited NPL inflows and likely somewhat stronger volume growth. 10

11 RV THOUGHTS & TRADE IDEAS CURRENT SPREAD LEVELS OFFER ATTRACTIVE ENTRY POINT Qatari banks have underperformed the sovereign curve (+65bps on average vs. +25bps for the sovereign since the crisis) and those of other GCC peers (see Table 19 in Appendix). As can be seen in Charts 6-7 further below, Qatari banks continue to trade among the cheapest in terms of spread-for-rating which poses an attractive entry point. Our view is supported by our analysis which sees withdrawals by impacted GCC having peaked already and liquidity buffers remaining sufficient to cover further gradual outflows. Moreover, there has been clear evidence of government support. We think that further support can be expected in case of need, given the high relevance of the financial sector and previous examples of support in 2008/2009. With ratings either on negative outlook or rating watch negative, further downgrades remain a risk but we note that Qatari bank credit already price in potential downgrades by c. 3 notches (see Chart 7-8), which we think is rather unlikely to materialise to the full extent in the medium -term. From a technical aspect, Qatari banks have several large loan and debt maturities upcoming. We therefore think that potential supply could prevent spreads in the long-end (5yr) from rallying meaningfully. In the short-end (2-3yrs), pressure could arise from concerns on further downgrades (although some money market funds have already reduced their exposure) and further forced selling from impacted GCC investors (although we have seen less selling pressure here recently). All in all, we think that the dynamics favour the shorter-end. As we have highlighted above, the crisis increases the relevance of asset quality. Most notably, exposure to different client segments will result in future divergence although upward pressure on NPL ratios will remain moderate for most banks. Potential risks for our supportive view on Qatari bank paper include scenarios of accelerated withdrawals driven by financial sanctions by the group of countries led by Saudi Arabia. Moreover, the intensification of the conflict could lead to withdrawals from third parties outside the GCC. On the wholesale funding market, we see the key risk in loan and international debt capital markets remaining challenging although an entire closure remains unlikely (as reflected by the QIB private placements in early August). Upcoming refinancing needs will however remain in the spotlight and we would observe QIBOR rates as a potential indicator for banking system funding pressure. We consider concerns about the FX peg as very distant at this point. In terms of asset quality, we would continue to observe oil prices, trade volumes, consumer prices, real estate prices and building permits as leading indicators. 11

12 FAVOUR QIBKQD 2.754% 10/20 (NR/NR/A) CHART 5: QIBKQD 20 VS. QATAR 20 Among the Qatari bank paper, we currently like QIBKQD 2.754% 10/20s (Z+175bps ask; NR/NR/A) of Qatar Islamic Bank (QIB; A1 neg/a- RWN/A neg). Specifically, we consider the pickup vs. the sovereign curve of nearly 100bps (QATAR 5.25% 01/20s trade at Z+83bps bid) as high vs. pre-crisis levels (c.45bps) which compensates investors for QIB s more vulnerable funding profile. That said, we consider further withdrawals as manageable thanks to public deposit inflows while we prefer QIB s metrics over those of peers with bonds trading in a similar range such as Ahli Bank (on size, higher profitability, lower LtD ratio) and Commercial Bank (higher profitability, stronger asset quality) please see Tables 13, 15 and 17 in the Appendix. Source: Bloomberg, MUFG We are well aware of the higher exposure to other GCC in due to banks (around 41% or QAR 5.5bn as of 4Q16) and deposits (around 24% or QAR 22.8bn). As a result, the bank had seen meaningful withdrawals since the start of the crisis, with total deposits dropping by 7% qoq to QAR 97bn in 2Q17 (from QAR 104bn in 1Q17). The financing-to-deposit ratio increased to 113% (from 96%) although this is now in line with the banking system LtD of 114% (as of June). Due to Banks however increased by 94% to QAR 18bn (from QAR 9bn) as the bank benefitted from major QCB fund inflows (also reflected by QCB statistics that show an injection of QAR 25bn into Islamic banks in June). While outflows have likely peaked in June and July, further deposit and interbank placement withdrawals are likely as they roll-off gradually. We consider QIB s liquidity buffer as relatively modest, but expect that the bank will continue to benefit from offsetting deposits by the public sector. Wholesale funding exposure remains in the spotlight as the bank faces a USD 750mn maturity in October. In our opinion, the bank will therefore likely raise new funds through a return to international debt capital markets or further private placements (which makes us favour the 2020 vs. the 2022 notes). As seen in early August, QIB was the first bank to reopen the private placement market with a combined amount of USD 34mn. Positively, Islamic banks such as QIB are not exposed to the syndicated loan market such as their conventional peers and therefore less exposed to wholesale funding overall. Fundamentally, QIB remained very strong in terms of asset quality with an NPA ratio of 0.9% (vs. 1.0% in 1Q17). Moreover, the bank decided to boost its coverage ratio to 110% in 2Q (up from 89%) thanks to a strong quarter. We think that going forward, modest funding pressure and some weakening in asset quality could result in lower profitability (vs. RoE of 15% in FY16). Positively however, the bank said that recent volume growth (+10% qoq) was mainly driven by the public sector which now represents around 18% of total financing (vs. 10% in 4Q16). In our conversation with the bank, we were told that financing growth is likely to remain muted going forward. Lastly, we think that government support would be forthcoming given QIB s status as second largest bank in Qatar. Please see Table 17 in the Appendix for QIB s credit metrics. 12

13 FAVOUR QNBK 07/21 FLOATERS (AA3/NR/A+) We see limited room for the QNBK benchmark curve of Qatar National Bank (QNB; Aa3 neg/a RWN/A+ neg) to outperform vs. the sovereign curve (QATAR sov+45bps) at this point. However, we currently like QNBK 07/21 floaters (DM 165bps ask; Aa3/NR/A+) which we think offers an attractive spread over their fixed QNBK 2.125% 09/21 counterparts (MS+131bps/Z+136bps), compensating investors by c. 35bps for the less liquid nature. Investors would also benefit in a rising rates environment. QNB s funding profile has so far remained very resilient in light of the current crisis. Consolidated 2Q17 figures (incl. Finansbank and QNB ALAHLI) showed a meaningful increase in deposits (+6% qoq) which outpaced loan growth (+3%) to result in a decrease in the LtD ratio to 98% (from 101% in 1Q17). The deposit growth was mainly driven by Qatari GREs while the bank also said that the exposure to impacted GCC was limited in terms of deposits (3.8%) and interbank funding (c. 1%). Moreover, the share of liquid as of total asset (24%, flat qoq) has remained relatively stable. Asset quality remains strong with a stable NPL ratio of 1.8% and a coverage ratio at 110%. Capitalisation has also remained stable with a CET 1 ratio of 13.1% and CAR of 15.6% (vs. 13.2% and 15.7% in 1Q17). All in all, QNB has so far been in a much more comfortable position than other Qatari counterparts thanks to its profile as the GCC largest bank, close relationship to the government and high systemic relevance (50% government ownership, 40% market share). Its more significant exposure to international forays however also means that it is more exposed to the wholesale funding markets, with USD 6bn under the EMTN programme and USD 3bn of syndicated loans maturing within the next year. Moreover, the bank has a USD 10bn CD programme. As a consequence, QNB has been reported to consider several funding options including private placements, a public transaction or loans. On Aug 24, a QNB spokesman confirmed to Reuters that there were several proposals for a Formosa issue from several international banks, although no decision has been made. Please see Table 18 in the Appendix for QNB s credit metrics. 13

14 CHART 6: GLOBAL BANKS RATING RV CHART (2-3YR USD SENIORS) Source: MUFG, Bloomberg CHART 7: GLOBAL BANKS RATING RV CHART (5YR USD SENIORS) Source: MUFG, Bloomberg 14

15 APPENDIX BANKING SYSTEM LOANS & DEPOSITS TABLE 11: QATAR BANKING SYSTEM LOANS TABLE 12: QATAR BANKING SYSTEM DEPOSITS Sector / as of July July June Subdivision Total %Total %mom mom %mom mom Residential 795,795 89% 2% 16,144-1% -5,331 Government 169,018 19% 9% 13,573-9% -15,946 Industry 24,922 3% 12% 2,768 0% -85 Trading 71,074 8% 1% 531 3% 1,807 Services 171,481 19% -1% -1,211 2% 3,891 Contractors 40,963 5% 2% 897 1% 238 Real Estate 186,616 21% 1% 1,744 1% 2,138 Consumptio 122,067 14% 0% % 1,121 Other 9,655 1% -14% -1,594 15% 1,505 Non-Res 95,415 11% -2% -1,681 1% 560 Government 615 0% -24% % -116 Industry 6,172 1% -13% % -30 Trading 9,267 1% 0% -23 4% 350 Services 67,620 8% -1% % 69 Contractors 2,216 0% 20% % -225 Real Estate 6,968 1% 1% 49 0% 34 Consumptio 527 0% 1% 3 0% 0 Other 2,031 0% -4% % 478 Total 891, % 2% 14,463-1% -4,771 Source: QCB, MUFG (as of Jul-17) Sector / as of July July June Subdivision Total %Total %mom mom %mom mom Residential 615,326 80% 3% 15,250 4% 22,443 Government 97,639 13% 13% 11,560 18% 12,841 Industry 22,294 3% 1% 188-2% -365 Trading 38,317 5% 8% 2,780-9% -3,325 Services 242,703 31% 0% % 34,047 Contractors 12,788 2% -13% -1,916 3% 419 Real Estate 9,334 1% -2% % 222 Personal 159,163 21% 1% 2,169-4% -6,781 Other 33,087 4% -1% % -14,616 Non-Res 157,152 20% -8% -13,478-8% -13,949 Government 6,862 1% -5% % 148 Industry 1,476 0% -19% % -1,927 Trading 5,830 1% -10% % -458 Services 121,488 16% -7% -9,610-12% -18,432 Contractors 1,129 0% 4% 48-2% -18 Real Estate 69 0% -30% -30 8% 7 Personal 749 0% -6% % -283 Other 19,548 3% -11% -2,508 47% 7,014 Total 772, % 0% 1,772 1% 8,494 Source: QCB, MUFG (as of Jul-17) INTERBANK & DEPOSIT RATES CHART 8: INTERBANK & DEPOSIT RATES (MONTHLY) CHART 9: INTERBANK RATES (WEEKLY) Source: QCB, MUFG, QCB monthly weighted averages Source: Bloomberg, MUFG end-of-week 15

16 BANK PROFILES TABLE 13: AHLI BANK QATAR (ABQ; A2 NEG/NR/A NEG) CREDIT METRICS QAR mn FY14 FY15 2Q16 3Q16 4Q16 FY16 1Q17 2Q17 QoQ YoY Net Interest Income % 20% Operating Income % 12% Operating Expenses % -10% Loan Loss Provisions % -255% Net Income % 3% Total Assets 31,380 32,299 34,319 35,298 38,165 38,165 37,866 37,796 0% 10% Net Loans 21,308 24,045 25,051 25,370 26,861 26,861 26,647 26,901 1% 7% Deposits 19,893 20,384 20,790 21,343 25,011 25,011 22,086 22,103 0% 6% Equity 4,171 4,540 4,593 4,763 4,860 4,860 4,841 5,004 3% 9% NIM (%) 2.7% 2.4% 2.1% 2.1% 2.1% 2.1% 2.0% 2.1% Cost-to-Income (%) 28% 27% 31% 25% 29% 28% 27.4% 24.6% RoAE (%) 15.5% 15.1% 14.8% 14.7% 13.6% 13.6% 14.0% 14.0% RoAA (%) 2.2% 2.1% 2.0% 2.0% 1.8% 1.8% 1.8% 1.8% Net Loans (% of Assets) 68% 74% 73% 72% 70% 70% 70% 71% YoY Growth (%) 23% 13% 12% 13% 12% 12% 6% 7% Cash (% of Assets) 6% 4% 6% 6% 5% 5% 4% 4% Securities (% of Assets) 16% 15% 14% 14% 15% 15% 19% 17% Loans-to-Deposits (%) 107% 118% 120% 119% 107% 107% 121% 122% NPL Ratio (%) 1.2% 1.2% 1.0% 1.0% 0.8% 0.8% 0.9% 1.0% Coverage Ratio (%) 137% 126% 138% 135% 151% 151% 150% 131% Provisioning (% of PPOP) 6% 2% -7% 2% -1% -2% 2% 9% Equity (% of Assets) 13.3% 14.1% 13.4% 13.5% 12.7% 12.7% 12.8% 13.2% CET1 Ratio (%) 17.6% 15.9% NA NA 14.1% 14.1% NA NA T1 Ratio (%) 17.6% 15.9% NA NA 14.1% 14.1% NA NA Capital Adequacy Ratio (%) 18.1% 16.2% 15.1% 14.5% 14.2% 14.2% 16.2% 15.1% Loans by Sector (FY16) 3% 6% 13% 10% 43% 25% Gov & Gov Agencies Commercial RE & Contracting Services Personal Others Source: Banks, MUFG TABLE 14: AL KHALIJ COMMERCIAL BANK (AKCB; A3 NEG/NR/A NEG) CREDIT METRICS QAR mn FY14 FY15 2Q16 3Q16 4Q16 FY16 1Q17 2Q17 QoQ YoY Net Interest Income % 17% Operating Income 1,013 1, , % 2% Operating Expenses % -5% Loan Loss Provisions % 92% Net Income % -3% Total Assets 51,242 56,634 60,638 58,526 60,597 60,597 59,156 58,245-2% -4% Net Loans 26,877 33,447 35,343 36,281 35,180 35,180 35,820 35,197-2% 0% Deposits 27,443 30,935 30,456 29,836 32,195 32,195 33,656 32,202-4% 6% Equity 5,782 5,987 5,908 6,076 6,033 6,033 6,016 6,071 1% 3% NIM (%) 1.7% 1.8% 1.7% 1.6% 1.6% 1.6% 1.6% NA Cost-to-Income (%) 34% 30% 29% 26% 29% 28% 25% 27% RoAE (%) 9.9% 10.6% 10.1% 9.0% 6.6% 6.6% 6.3% NA RoAA (%) 1.2% 1.2% 1.1% 1.0% 0.7% 0.7% 0.7% NA Net Loans (% of Assets) 52% 59% 58% 62% 58% 58% 61% 60% YoY Growth (%) 30% 24% 19% 15% 5% 5% 2% 0% Cash (% of Assets) 6% 3% 5% 5% 4% 4% 4% 4% Securities (% of Assets) 32% 27% 25% 27% 26% 26% 24% 24% Loans-to-Deposits (%) 98% 108% 116% 122% 109% 109% 106% 109% NPL Ratio (%) 1.4% 0.9% 0.8% 1.2% 1.5% 1.5% 1.6% 1.8% Coverage Ratio (%) 49% 89% 108% 94% 110% 110% 114% 113% Provisioning (% of PPOP) 1% 10% 13% 56% 111% 45% 27% 23% Equity (% of Assets) 11.3% 10.6% 9.7% 10.4% 10.0% 10.0% 10.2% 10.4% CET1 Ratio (%) 15.3% 13.8% 13.4% 13.4% 13.4% 13.4% 13.8% 13.3% T1 Ratio (%) 15.3% 13.8% 15.8% 15.8% 15.8% 15.8% 16.2% 15.7% Capital Adequacy Ratio (%) 15.3% 13.8% 15.8% 15.8% 15.8% 15.8% 16.2% 15.7% Loans by Sector (1Q17) 17% 15% 7% 16% 27% 18% Gov & Public Sector Services Real Estate Contracting Personal Others Source: Banks, MUFG 16

17 TABLE 15: COMMERCIAL BANK QATAR (CBQ; A2 NEG/BBB+ RWN/A NEG) CREDIT METRICS QAR mn FY14 FY15 2Q16 3Q16 4Q16 FY16 1Q17 2Q17 QoQ YoY Net Interest Income 2,581 2, , % 3% Operating Income 3,902 3, , % -2% Operating Expenses -1,424-1, , % -21% Loan Loss Provisions , % 40% Net Income 1,880 1, % -58% Total Assets 115, , , , , , , ,448-1% 5% Net Loans 72,541 76,602 77,388 75,995 77,798 77,798 82,030 83,610 2% 8% Deposits 61,561 69,788 72,085 66,730 70,926 70,926 71,879 74,390 3% 3% Equity 15,028 14,753 14,389 14,251 15,301 15,301 16,983 17,134 1% 19% NIM (%) 2.7% 2.5% 2.3% 2.3% 2.2% 2.2% 2.2% 2.2% Cost-to-Income (%) 37% 38% 40% 39% 43% 41% 34% 32% RoAE (%) 11.7% 8.2% 5.3% 3.6% 2.7% 2.7% 1.8% 1.8% RoAA (%) 1.7% 1.2% 0.8% 0.5% 0.4% 0.4% 0.3% 0.3% Net Loans (% of Assets) 63% 62% 61% 61% 60% 60% 61% 63% YoY Growth (%) 8% 6% 7% 4% 2% 2% 9% 8% Cash (% of Assets) 6% 4% 7% 4% 5% 5% 4% 6% Securities (% of Assets) 10% 13% 12% 13% 12% 12% 13% 14% Loans-to-Deposits (%) 118% 110% 107% 114% 110% 110% 114% 112% NPL Ratio (%) 3.8% 4.2% 4.8% 5.3% 5.0% 5.0% 5.0% 5.6% Coverage Ratio (%) 74% 71% 79% 79% 79% 79% 86% 84% Provisioning (% of PPOP) 25% 34% 63% 93% 33% 59% 81% 81% Equity (% of Assets) 13.0% 12.0% 11.3% 11.5% 11.7% 11.7% 12.6% 12.8% CET1 Ratio (%) 11.0% 9.9% 9.9% 10.0% 9.7% 9.7% 11.2% 11.4% T1 Ratio (%) 13.1% 11.8% 13.5% 13.6% 13.1% 13.1% 14.6% 14.7% Capital Adequacy Ratio (%) 15.2% 13.5% 15.6% 15.8% 15.2% 15.2% 16.1% 16.2% Loans by Segment 10% 27% 63% Gov & Gov Agencies Wholesale Retail Source: Banks, MUFG TABLE 16: DOHA BANK (A2 NEG/A- RWN/A NEG) CREDIT METRICS QAR mn FY14 FY15 2Q16 3Q16 4Q16 FY16 1Q17 2Q17 QoQ YoY Net Interest Income 1,941 2, , % 9% Operating Income 2,860 2, , % 9% Operating Expenses % 0% Loan Loss Provisions % 56% Net Income 1,359 1, , % -1% Total Assets 75,518 83,289 87,358 84,450 90,365 90,365 90,710 91,800 1% 5% Net Loans 48,559 55,595 55,424 55,578 59,186 59,186 59,469 59,191 0% 7% Deposits 45,947 52,767 52,407 48,601 55,730 55,730 53,993 55,995 4% 7% Equity 9,293 9,187 9,083 9,449 9,381 9,381 9,006 10,592 18% 17% NIM (%) NA NA NA 2.5% 2.4% 2.4% 2.3% 2.4% Cost-to-Income (%) 33% 34% 36% 35% 41% 36% 34.1% 33.3% RoAE (%) 16.5% 16.1% NA NA NA 12.1% NA NA RoAA (%) 1.9% 1.7% NA NA NA 1.2% NA NA Net Loans (% of Assets) 64% 67% 63% 66% 65% 65% 66% 64% YoY Growth (%) 0% 14% 4% 2% 6% 6% 5% 7% Cash (% of Assets) 4% 4% 5% 5% 5% 5% 5% 6% Securities (% of Assets) 13% 15% 15% 17% 16% 16% 17% 18% Loans-to-Deposits (%) 106% 105% 106% 114% 106% 106% 110% 106% NPL Ratio (%) 3.1% 3.3% 2.9% 3.1% 3.3% 3.3% 3.0% 3.1% Coverage Ratio (%) 114% 110% 117% 117% 120% 120% 126% 119% Provisioning (% of PPOP) 23% 17% 11% 18% 76% 27% 11% 16% Equity (% of Assets) 12.3% 11.0% 10.4% 11.2% 10.4% 10.4% 9.9% 11.5% CET1 Ratio (%) 11.8% 10.4% 10.6% 10.6% 10.4% 10.4% 10.1% 11.9% T1 Ratio (%) 14.7% 15.4% 15.7% 15.7% 15.4% 15.4% 14.8% 16.8% Capital Adequacy Ratio (%) 15.0% 15.7% 16.1% 16.1% 15.6% 15.6% 15.0% 17.0% Loans by Sector 5% 17% 79% Gov & Gov Agencies Corporate Retail Source: Banks, MUFG 17

18 TABLE 17: QATAR ISLAMIC BANK (QIB; A1 NEG/A- RWN/A NEG) CREDIT METRICS QAR mn FY14 FY15 2Q16 3Q16 4Q16 FY16 1Q17 2Q17 QoQ YoY Net Interest Income 2,529 2, , ,016 15% 33% Operating Income 3,069 3, ,809 1,057 1,203 14% 25% Operating Expenses -1,020-1, , % 8% Loan Loss Provisions % 260% Net Income 1,601 1, , % 8% Total Assets 96, , , , , , , ,887 2% 9% Net Loans 59,682 87,515 96,565 96,609 98,171 98,171 99, ,692 10% 14% Deposits 66,605 91,521 95,314 96,351 95,397 95, ,939 96,936-7% 2% Equity 12,478 13,376 13,371 13,854 14,238 14,238 13,671 14,321 5% 7% NIM (%) 3.5% 3.1% NA NA 2.6% 2.6% NA NA Cost-to-Income (%) 33% 32% 30% 30% 30% 30% 27.3% 25.9% RoAE (%) 13.4% 15.1% NA NA 15.0% 15.0% NA NA RoAA (%) 1.8% 1.7% NA NA 1.6% 1.6% NA NA Net Loans (% of Assets) 62% 69% 72% 72% 70% 70% 69% 75% YoY Growth (%) 0% 47% 25% 17% 12% 12% 9% 14% Cash (% of Assets) 5% 4% 4% 4% 4% 4% 4% 4% Securities (% of Assets) 17% 15% 13% 14% 14% 14% 14% 14% Loans-to-Deposits (%) 90% 96% 101% 100% 103% 103% 96% 113% NPL Ratio (%) 0.9% 0.6% 0.8% 1.0% 1.0% 1.0% 1.0% 0.9% Coverage Ratio (%) 94% 101% 88% 84% 80% 80% 89% 110% Provisioning (% of PPOP) 4% 4% 8% 19% -1% 8% 17% 21% Equity (% of Assets) 13.0% 10.5% 9.9% 10.3% 10.2% 10.2% 9.5% 9.7% CET1 Ratio (%) NA NA NA NA NA NA NA NA T1 Ratio (%) 14.6% 13.7% NA NA 16.2% 16.2% NA NA Capital Adequacy Ratio (%) 14.6% 14.1% NA NA 16.7% 16.7% NA NA Loans by Sector (FY16) 10% 24% 4% 39% 23% Gov & Gov Agencies Corporate Real Estate Contracting Personal Source: Banks, MUFG TABLE 18: QATAR NATIONAL BANK (QNB; AA3 NEG/A RWN/A+ NEG) CREDIT METRICS QAR mn FY14 FY15 2Q16 3Q16 4Q16 FY16 1Q17 2Q17 QoQ YoY Net Interest Income 12,262 12,746 5,611 4,719 4,270 17,887 4,176 4,419 6% -21% Operating Income 15,415 15,902 7,436 5,920 5,207 22,692 5,432 5,695 5% -23% Operating Expenses -3,024-3,264-2,441-1,669-1,508-6,478-1,452-1,532 5% -37% Loan Loss Provisions -1, , , % -79% Net Income 10,455 11,264 3,381 3,407 2,711 12,365 3,204 3,450 8% 2% Total Assets 486, , , , , , , ,052 3% 11% Net Loans 338, , , , , , , ,238 3% 11% Deposits 357, , , , , , , ,055 6% 15% Equity 56,983 61,103 62,338 64,816 60,023 60,023 60,086 62,854 5% 1% NIM (%) 2.9% 2.8% 2.9% 2.9% 2.9% 2.9% 2.7% 2.7% Cost-to-Income (%) 20% 21% 33% 28% 29% 29% 27% 27% RoAE (%) 21.4% 20.6% NA NA NA 19.7% NA NA RoAA (%) 2.3% 2.2% NA NA NA 2.0% NA NA Net Loans (% of Assets) 70% 72% 72% 71% 72% 72% 72% 72% YoY Growth (%) 9% 15% 39% 38% 34% 34% 33% 11% Cash (% of Assets) 6% 6% 7% 7% 6% 6% 6% 7% Securities (% of Assets) 14% 15% 14% 13% 11% 11% 10% 11% Loans-to-Deposits (%) 95% 98% 102% 101% 103% 103% 101% 98% NPL Ratio (%) 1.6% 1.4% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% Coverage Ratio (%) 124% 127% 127% 130% 114% 114% 114% 110% Provisioning (% of PPOP) 9% 3% 21% 11% 25% 15% 10% 5% Equity (% of Assets) 11.7% 11.3% 9.0% 9.1% 8.3% 8.3% 8.1% 8.2% CET1 Ratio (%) 16.1% 16.3% 11.8% 11.8% 13.4% 13.4% 13.2% 13.1% T1 Ratio (%) 16.1% 16.3% 14.2% 14.3% 15.9% 15.9% 15.7% 15.6% Capital Adequacy Ratio (%) 16.2% 16.3% 14.2% 14.3% 16.0% 16.0% 15.7% 15.6% Source: Banks, MUFG Loans by Sector 9% 11% 12% 24% Gov & Gov Agencies Services Real Estate Personal Others 44% 18