QATAR NATIONAL BANK (Q.P.S.C.)
Fitch Ratings has affirmed
QNB's Viability Rating (VR) has also been affirmed at 'bbb+'. A full list of rating actions is below.
Key Rating Drivers
QNB's IDRs reflect potential support from the Qatari authorities, if needed. QNB's Short-Term IDR of 'F1' is the lower of two options permitted in our rating criteria for an 'A' Long-Term IDR because a significant proportion of the banking sector's funding is government-related and financial stress at QNB is likely to come at a time when the sovereign itself is experiencing some form of stress.
QNB's VR reflects the bank's dominant franchise in
Government Support Rating of 'a': The Qatari authorities have strong propensity to support domestic banks, irrespective of their size or ownership. They also have a strong ability to do so, as indicated in the sovereign rating (AA-/Stable) and substantial net foreign assets and revenue, albeit weakened by the Qatari banking sector's high reliance on external funding and recent rapid asset growth. QNB's Government Support Rating (GSR) is one notch above the 'a-' GSR for Qatari domestic systemically important banks given its flagship status.
Stronger Domestic Operating Environment: High hydrocarbon prices support the strengthening of the local operating environment for Qatari banks. The 2022 FIFA World Cup and higher private-sector demand from improving business sentiment also underpin this trend. However, QNB's material non-domestic operations (end-1H22: 31% of total assets) in weaker markets weigh on Fitch's assessment of its operating environment.
Sound Asset Quality: QNB's asset quality compares well with domestic peers', supported by relatively low-risk lending to Qatari government-related entities (GRE), which comprised 36% of QNB's total loans at end-1H22. QNB's Stage 3 loan ratio has gradually ticked up since the start of the pandemic (end-1H22: 2.4%; end-2019: 1.9%). This trend could continue given heightened asset-quality risks in
Solid Profitability: QNB consistently generates solid operating profits (1H22: 3.6% of risk-weighted assets; 2021: 2.9%) underpinned by its strong competitive advantages, including close ties to the Qatari government. Growing net interest margins and excellent cost efficiency supported a strong rebound in profitability in 1H22. Loan impairment charges (31% of pre-impairment operating profit in 1H22) remain elevated relative to pre-pandemic levels (2019: 17%), partly reflecting operating environment uncertainties.
Adequate Capitalisation: QNB's capitalisation is adequate (end-1H22: common equity Tier 1 (CET1) ratio of 13.7%) and compares favourably to most peers. We expect QNB's capital and leverage to remain stable considering its strong ability to generate capital internally, moderate growth targets and strong ability to access capital from shareholders and the market.
High External Funding: Non-resident funding comprised an above-average 58% of QNB's total funding at a domestic level at end-1H22 (end-2021: 62%). QNB's funding profile is supported by its leading regional franchise, large volumes of GRE deposits and strong access to liquidity, including from the Qatari authorities.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of the sovereign rating or a negative change in Fitch's assessment of the government's propensity to provide support would likely result in a downgrade of QNB's GSR and IDR.
QNB's VR is sensitive to further material expansion into weaker operating environments that undermine its risk profile and asset quality. A weakening in QNB's CET1 ratio to below 13% and tangible leverage ratio to below 6%, combined with a weaker ability to access capital from the market or the QIA, could put downward pressure on the VR. A significant increase in non-domestic funding or a material decline in liquidity buffers, could lead to a VR downgrade.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
QNB's GSR and IDR could be upgraded if Fitch views that the sovereign's ability to support the sector has strengthened, either through a sovereign rating upgrade or through a substantial reduction in external funding and system assets relative to GDP.
Upside to the VR is unlikely unless QNB significantly reduces its exposure to more vulnerable markets. A combination of a material and sustainable improvement in core capitalisation, asset quality and profitability, and a material reduction in external funding risks, could also put upward pressure on the VR.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The ratings of senior debt issued by QNB's special purpose vehicle (SPV),
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The ratings of debt issued by the SPV are sensitive to changes in the bank's IDRs.
VR ADJUSTMENTS
The operating environment score of 'bbb-' has been assigned below the 'aa' category implied score due to the following adjustment reasons: size and structure of the economy (negative), financial market development (negative), regulatory and legal framework (negative), and international operations (negative).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
QNB's IDRs are linked to the
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/esg.
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