Qatar National Bank - Ratings Affirmed with a Stable Outlook

(MENAFN- Capital Intelligence Ltd) Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Qatar National (QNB) at ‘AA-’ and ‘A1+’, respectively. At the same time, CI Ratings has affirmed QNB’s Bank Standalone Rating (BSR) of ‘a-’, Core financial Strength (CFS) rating of ‘a-’ and Extraordinary Support Level (ESL) of Very High. The Outlook for the LT FCR and BSR remains Stable.

The Bank’s LT FCR is set three notches above the BSR to reflect the very high likelihood of extraordinary support from the government in case of need. This is based on the government’s strong track record of support for Qatari banks. At different points in time such support has included the transfer of ‘difficult investments’ to the state, the transfer of real estate loans, and the injection of additional equity. Most recently, all banks were able to rely on a sharp increase in government deposits to stave off any liquidity pressures following the June 2017 boycott action led by KSA and UAE. Moreover, the government has ownership stakes in all Qatari banks. The government’s financial capacity to support the Bank is also considered to be strong given Qatar’s sovereign ratings (‘AA-’/’A1+’/Stable). In addition, given QNB’s position as the largest bank in the system with more than half of sector assets and with the government as major shareholder, and its ‘national bank’ status, the probability of government support in the event of need is very high.

QNB’s BSR is based on a CFS rating of ‘a-’ and an OPERA of ‘bbb’. The OPERA for Qatar reflects substantial government assets under QIA management (transparency is however limited), very large hydrocarbon reserves, high expenditure flexibility, low domestic stability risks, very large government contingent liabilities due to the large size of banking sector, limited economic diversification, and substantial geopolitical risks.

The CFS is supported by QNB’s robust domestic banking franchise with dominant market shares in target segments and sectors, overall good asset quality with strong credit loss absorption capacity, solid and resilient profitability and strong capitalisation. These strengths are counterbalanced to some degree by the limited size of the Qatari banking market that restricts scope for domestic asset growth, sub-investment grade country risk and foreign exchange exposure on some overseas operations, as well as high reliance on foreign sources of funding (largely at parent level).

QNB’s asset quality is overall good, while credit loss absorption capacity is strong. The quality of the lending portfolio is sound, reflected in moderate NPL levels and accretion rates, and more than full cover by loan loss reserves (LLRs). The extended NPL coverage ratio is also high. QNB has continued to beef up provisions and has a substantial amount of additional risk reserves greater than the Qatar Central Bank (QCB) requirements. While the full impact of the pandemic on asset quality is not expected to be revealed until after the expiry of the forbearance measures, CI expects the effect to be moderate.

QNB’s profitability is solid and earnings quality is good, with the Bank posting consistent results (excluding the precautionary provisions in 2020). Its profitability is comparable to the sector average, supported by its broadly stable net interest margins, which remained above average, and continued efficiency gains. The cost-to-income ratio remained on a declining trend and reached a level in line with its peers, which is however low by international standards.

The Bank has overall good liquidity and funding profile, supported by a stable and diversified customer deposit base. Its customer deposits recorded a steady growth rate over the last five years that matched that of customer lending growth. The Bank’s funding and liquidity metrics have been stable and consistent over the years. The net stable funding ratio has remained above 100% over the years. Liquidity risk is considered low due to diversification of funding by provider, geography, instrument, and by the ability to turn to the government in extremis. Key foreign subsidiaries are self funding.
QNB is well capitalised with strong CAR and Tier 1 capital ratios which are well ahead of its peers, while its CET-1 ratio was slightly below the peer average. The record of internal capital generation has been good (albeit trending downwards), as is the current level of balance sheet leverage. With good asset quality and strong LLR coverage, capital is unlikely to be impaired by unprovided NPLs. QNB’s CET-1 ratio is well above the minimum requirement of the QCB, based on international standards (Basel III), while its CAR comfortably exceeds the QCB floor for total cap.

Rating Outlook

The Outlook for the LT FCR and BSR is Stable. This indicates that CI does not consider a change in either rating likely in the next 12 months. Similarly, there are currently no factors present that make a movement in either Outlook likely in the short to medium term.

Rating Dynamics: Upside Scenario

An upgrade over the next 12 months appears remote at this stage since this would require an upgrade of the sovereign ratings or outlook.

Rating Dynamics: Downside Scenario

A downgrade of the Bank’s LT FCR would require a deterioration of its standalone strength or a downgrade of the sovereign. With the ratings for QNB so closely tied to those of the sovereign, the most likely downside risk for QNB’s LT FCR is related to potential changes in the ratings or outlook assigned to the sovereign. The lowering of the Bank’s BSR appears unlikely in the short term as it needs to be caused by an unexpected and significant weakening of its overall financial metrics.

About the Ratings

The credit ratings have been issued by Capital Intelligence Ratings Ltd, P.O. Box 53585, Limassol 3303, Cyprus.

The following information source was used to prepare the credit ratings: public information. Financial data and metrics have been derived by CI from the rated entity’s financial statements for FY2017-21. CI may also have relied upon non-public financial information provided by the rated entity and may also have used financial information from credible, independent third-party data providers. CI considers the quality of information available on the rated entity to be satisfactory for the purposes of assigning and maintaining credit ratings. CI does not audit or independently verify information received during the rating process.

The principal methodology used to determine the ratings is the Bank Rating Methodology, dated 3 April 2019 (see Information on rating scales and definitions, the time horizon of rating outlooks, and the definition of default can be found at Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at

This rating action follows a scheduled periodic (annual) review of the rated entity. Ratings on the entity were first released in December 1994. The ratings were last updated in April 2021. The ratings and rating outlook were disclosed to the rated entity prior to publication and were not amended following that disclosure. The ratings have been assigned or maintained at the request of the rated entity or a related third party.
 
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