Capital Intelligence (CI), the international credit rating agency, announced today that it has affirmed Qatar National Bank’s (QNB) Financial Strength Rating (FSR) at ‘AA-’, which reflects the Bank’s ownership, very strong credit metrics and franchise, as well as the robust and supportive operating environment in Qatar, and QNB’s geographically diversified business profile. 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 QIA and the Bank’s role as the financial arm of the Qatari Government. The Outlook on all Ratings is ‘Stable’.
QNB’s credit profile is supported by fine asset quality and high and consistent return on average equity (ROAE) profitability. Although net profit growth slowed in 2013 due to the increase in operating expenses derived from the acquisition of QNB ALAHLI (AAH) in Egypt, QNB continued to produce the highest net profit amongst GCC banks. QNB also has excellent cost metrics compared to regional peers. Despite the difficult conditions prevailing in Egypt, AAH concluded a very successful year in 2013 with 17% growth in net profit and a 27% rise in its customer deposit base, while it maintains very good asset quality and loss reserve coverage.
As was expected, funding the acquisition in Egypt without a capital increase has lowered capital adequacy through growth in risk weighted assets and the impact of goodwill, but the Core Tier 1 ratio remains high. Although AAH offers QNB a platform for growth in one of the region’s largest and less developed banking markets, it also exposes QNB’s capital to greater volatility because of foreign exchange translation and other market risks. Geopolitical risks in Egypt and in the wider MENA region are also a constraining factor, as well as the small size in terms of population of the Qatari banking market, which however is mitigated by Qatar’s robust economic growth. Moreover, through its presence in as many as 26 countries QNB has already achieved a high diversification of its assets, funding sources and profits.
QNB’s key liquidity ratios are stable, with an improved blend of sources of funds. The Bank continued to enjoy very good access to capital markets, successfully issuing medium and long term liabilities. Stable sources of funding have increased from existing high levels as a proportion of overall funding with customer deposits and medium and long term debt providing an alternative to interbank funding. However, the net interbank position has weakened as bank balances were used to pay for the acquisition. AAH brings with it excellent local currency liquidity in the form of a low loan to total asset ratio and an extensive customer deposit franchise which has grown considerably.
At the current level, QNB’s FSR remains pressured, mainly on capital adequacy and to a lesser extent on liquidity. Although CI is of the opinion that more of both would be forthcoming from the Qatari government through the Qatar Investment Authority (QIA) as necessary, in the next review the FSR rating could be revised downwards, unless capital adequacy is restored to a more comfortable level, or if liquidity tightens.
QNB was founded in 1964 as the first Qatari-owned joint stock commercial bank in the country. At end 2013 QNB was the largest amongst GCC banks in terms of total assets (USD 121.8 billion) and net profit (USD 2.6 billion). In Qatar the Bank operates a growing domestic network of 76 branches. QNB’s international operations have been gradually expanded over the years and cover 26 countries through 590 branches and offices, including branches in London, Paris, Singapore, Kuwait and Oman, investments in associate banks and subsidiaries in Egypt, Switzerland, Jordan, Iraq, Tunisia, Libya, the UAE, Indonesia and Syria, as well as representative offices in other markets.
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