Fitch Ratings has affirmed Qatar National Bank’s (QNB) long-term issuer default rating (IDR) at ‘A+’ with a stable outlook. The viability rating (VR) has simultaneously been affirmed at ‘a’. A full list of rating actions is below.
“QNB’s IDRs reflect the extremely high probability of support from the Qatari authorities, if ever required. Fitch’s view of support is based on QNB’s 50% state ownership, systemic importance as Qatar’s largest lender/deposit taker and the authorities’ long history of support for the banking system,” Fitch in a statement said.
“The Viability Rating reflects QNB’s dominant domestic franchise due to close links to the Qatari government and its sound financial position. High concentrations in loans and deposits and exposure via associate banks/branches to certain volatile regional markets constrain the rating,” the statement added.
“QNB has performed extremely well, with improving core earnings, good cost control and low impairment charges supporting strong profitability,” said Mahin Dissanayake, Director in Fitch’s Financial Institutions team in Dubai. “Fitch expects these trends to continue, with QNB being a major beneficiary of increasing state spending and solid GDP growth.”
Fitch has few concerns about QNB’s asset quality, liquidity and capitalisation as all ratios are strong. In particular, a major rights issue during Q111 (totalling QR12.7bn) increased capital by 25%, which supports the bank’s aggressive domestic expansion plans. Asset quality pressure could arise from private sector real estate lending and retail banking, the two worst performing sectors in Qatar, in Fitch’s opinion. Balance sheet liquidity is healthy, underpinned by a solid customer deposit base.
The downside risks to QNB’s Viability Rating are low to moderate, in Fitch’s opinion. Firstly, the new Qatar Central Bank (QCB) rulings on Islamic Banking and Retail Banking could negatively affect QNB’s earnings given its significant market share in both segments.
Positively, Fitch noted that QNB had successfully held on to the majority of its Islamic loans and deposits since the recent QCB ruling for conventional banks to close Islamic operations by end-2011. Therefore, the impact on QNB’s balance sheet is likely to be low, in the agency’s opinion. Secondly, QNB is exposed to volatile markets in the region through its subsidiaries/branches. Fitch is not aware of any losses from these operations to date although weaker results from regional operations remain a possibility. It is also likely that the bank’s growth plans in certain markets will be curtailed for the time being.
Lastly, any slowdown in government spending on projects could adversely affect the bank’s franchise and performance. This scenario is currently remote.