Fitch Affirms Qatar National Bank at 'A+'; Stable Outlook
Fitch Ratings has affirmed Qatar National Bank (Q.P.S.C.)'s (QNB) Long-Term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook. 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, as reflected in a Government Support Rating (GSR) of 'a+'. The Stable Outlook reflects that on the Qatari sovereign rating (AA/Stable).
QNB's VR reflects the bank's flagship status and dominant franchise in Qatar, underpinned by close links to the Qatari government. It also balances the bank's sound asset quality, solid profitability and adequate capitalisation against risks stemming from its international presence in challenging markets and high reliance on external funding. The 'bbb+' VR is assigned above the 'bbb' implied VR due to our adjustment for its business profile.
Government Support Rating of 'a+': The Qatari authorities have a strong propensity to support domestic banks, irrespective of the banks' size or ownership. They also have a strong ability to do so, as indicated by the sovereign rating and substantial net foreign assets and revenue, although this is weakened by the Qatari banking sector's large size relative to the domestic economy and a high reliance on external funding. QNB's GSR is one notch above the 'a' GSR for Qatari domestic systemically important banks due to its flagship status.
Stable Domestic Operating Environment: High hydrocarbon prices continue to support Qatari banks' domestic operating environment. However, QNB's material non-domestic operations (end-2023: 30% of assets) in weaker markets weigh on Fitch's view of its operating environment. QNB's 'bbb-' operating environment score is a notch lower than the standard score for domestic Qatari banks due to these operations (notably in Turkiye and Egypt, a combined 16.4% of total assets at end-2023).
Flagship Bank: QNB is Qatar's flagship bank. Its dominant domestic franchise (end-1Q24: 50% market share of net loans) is underpinned by its strong links with the state, resulting in high volumes of lower-risk public-sector business. QNB is 50%-owned by the Qatar Investment Authority (QIA). International operations (3M24: 25% of net profit) provide diversification benefits but expose the bank to higher-risk jurisdictions (mainly Turkiye and Egypt).
Focus on GRE Lending: QNB's underwriting standards compare well with peers. Its lending in Qatar (end-1Q24: 80% of total loans) is low-risk, supported by lending to government-rated entities (GREs; 36.5%) and moderate exposure to the real estate and contracting sectors (a combined 9%, in line with the bank's internal limit). Contributions from international operations add diversification to QNB's business but also expose the bank to lower-rated markets, mainly in Egypt and Turkiye.
Sound Asset Quality: QNB's asset quality compares well with domestic peers', supported by fairly low-risk lending to Qatari GREs. QNB's loans loss allowances/gross loans ratio was a reasonable 3.5% at end-1Q24, and coverage of impaired loans is solid. Fitch expects QNB's Stage 3 loans ratio (2.8%) to be broadly stable in 2024.
Solid Profitability: QNB consistently generates solid operating profits (1Q24: 3.7% of risk-weighted assets (RWAs), annualised) underpinned by its strong competitive advantages, including close ties to the Qatari government, and growing net interest margins. Fitch expects QNB's operating profit to remain strong at about 3.5% of RWAs in 2024.
Adequate Capitalisation: QNB's capitalisation is adequate (end-1Q24: common equity Tier 1 (CET1) ratio of 14.4%) and compares well with most peers'. We expect QNB's capital and leverage to remain stable due to its strong ability to generate capital internally, moderate growth targets and strong ability to access capital from shareholders and the market.
Reducing but High External Funding: Non-resident funding comprised an above-average 56% of QNB's total domestic funding at end-2023, although this was reduced from 62% at end-2021. QNB's funding profile is supported by its leading regional franchise, large volumes of GRE deposits and strong access to liquidity and ordinary support.
