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DOHA: Capital Intelligence (CI), the international credit rating agency, has affirmed Qatar National Bank (QNB)’s Financial Strength Rating at ‘AA-’. The affirmation reflects the bank’s very strong credit metrics, its dominant franchise in Qatar, its growing international presence in Mena and Asia, as well as the robust and supportive operating environment in Qatar.
The Long- and Short-Term Foreign Currency (FC) Ratings are also affirmed at ‘AA-‘ and ‘A1+’, respectively, at the same level as the Sovereign Ratings for the State of Qatar. The Bank’s Support Rating of ‘1’ (affirmed) reflects ownership by the State of Qatar through Qatar Investment Authority (QIA) and the Bank’s increasing role as the financial arm of the Qatari Government. The Outlook on all Ratings is ‘Stable’, the CI said yesterday.
The ratings are supported by the bank’s fine asset quality, comfortable capital adequacy, and good profitability.
The ratings agency noted that QNB has demonstrated sound risk management and maintains a low non-performing loan (NPL) ratio, together with more than full loss reserve coverage of a high quality loan portfolio. Although the Bank’s profitability weakened in 2012 due to pressure on net interest margins, it is underpinned by a very strong cost to income ratio, which allowed it to produce the highest net profit among GCC banks.
The ratings are constrained by the small size in terms of geography and population of the Qatari banking market. As is the case for most Qatari banks, there is very high dependence on the government sector for business, which leads to high concentration risks. Banking system liquidity in Qatar can be volatile, reflecting variations in the volume of Government deposits in accordance with QIA’s foreign investment activities.
QNB’s capital adequacy, which improved significantly following a substantial increase in equity capital in 2011, is a key source of balance sheet strength, underpinning the Bank’s growth potential. However, the acquisition of National Societe Generale Bank in Egypt, expected to be completed by H1 2013, would bring that ratio down noticeably including through the impact of goodwill. It would also expose QNB’s operations to country risk and its capital base to a substantially higher level of forex translation risk.
Although CI notes that at the current level, ratings would begin to be pressured on capital adequacy, CI is also of the opinion that more capital would be forthcoming from the Qatari Government through QIA as necessary. The acquisition would also represent a shift to a more balanced business profile (in terms of a higher share of retail and commercial business), and a major step forward in QNB’s international expansion.