DOHA/PARIS: Given the ongoing political crisis in Egypt, Standard & Poor’s (S&P) has reassessed the stand-alone credit profile of Qatar National Bank (QNB) from ‘a-‘ to ‘bbb+’, however the leading credit ratings agency said it had affirmed Bank’s ‘A+’ long-term and ‘A-1’ short-term counterparty credit ratings with stable outlook.
“The rating affirmation follows our review of the implications of QNB’s recent acquisition of Egypt-based Nationale Société Générale Bank (NSGB). We consider that the weak operating environment in Egypt could be prolonged and significantly affect NSGB, with a likely adverse impact on QNB’s business and financial profiles. In particular, NSGB holds a high amount of government debt compared with its equity base and earnings capacity. We have therefore revised our assessment of QNB’s risk position to “moderate” from “adequate” and our assessment of QNB’s stand-alone credit profile (SACP) to ‘bbb+’ from ‘a-‘,” said a press statement yesterday.
The agency believes that there is a “very high” likelihood of extraordinary support from the government of Qatar if QNB were in financial distress because it classifies QNB as a government-related entity (GRE). This potential support provides a three-notch uplift above the SACP; therefore the long-term rating on QNB remains at ‘A+’.
The government owns 50 percent of QNB through Qatar Investment Authority, Qatar’s sovereign wealth fund, so it also has a strong interest in and business relationship with the bank.
In addition, the chairman of QNB’s board is Qatar’s Minister of Finance; and it play “Very important role” for the Qatari government, based on QNB’s central role in financing the country’s economy (including strategic sectors like hydrocarbons, petrochemicals, water, and power). This is reflected in the significant concentration of public-sector lending and deposits on its balance sheet.
“In our view, QNB also plays a part in supporting the state’s foreign policy strategy through its rapid international expansion, which promotes economic diversification,” S&P noted.
It viewed that NSGB’s domestic asset quality could deteriorate rapidly in the coming quarters as the domestic economy remains weak. As of June 30, 2013, NSGB reported total loans of QR22bn (about $6.04bn), accounting for almost 7 percent of QNB’s consolidated loan portfolio.
Nevertheless, it acknowledged that QNB’s overall resilience to risks incurred by operating in Egypt remains strong. In S&P’s opinion, QNB’s strong capitalization and significant retained earnings capacity are sufficient to absorb potential losses associated with a default of Egypt.
“We expect international banking activities to make an increasing contribution to QNB’s revenues over the next five years, compared with 17 percent in 2012. Consequently, we cannot rule out large acquisitions, as the bank aims to generate 45 percent of its revenues from abroad by 2017. Cross-border acquisitions are therefore likely to generate increased credit and execution risks, given QNB’s current business concentration in Qatar,” added the statement.
However, the agency noted that it could lower the ratings if QNB’s SACP were to deteriorate further, to ‘bbb-‘. This could occur if the acquisition of NSGB resulted in a material worsening of QNB’s asset quality or capitalization beyond the agency’s current expectations.
The Peninsula
