(MENAFN- Gulf Times) Capital Intelligence (CI), a global credit rating agency, yesterday affirmed QNB's long and short-term foreign currency ratings (FCRs) at ‘AA-' and ‘A1+' respectively, at the same level as the sovereign ratings for Qatar.
The bank's support rating of ‘1' (affirmed) reflects the ownership by the Qatar Investment Authority and its role as the financial arm of the government. The outlook on the long-term FCR is restored to ‘stable' from ‘negative'.
Asset quality and capitalisation of QNB - which has already achieved a high degree of diversification of its assets, funding sources and profits with its presence in more than 30 countries - are expected to remain good with capital adequacy ratio to be maintained at around 16% through additional Tier 1 or Tier 2 capital, if necessary, it said.
Profitability should remain good with any pressures on domestic net interest margin (NIM) being at least partially offset by the higher NIMs in Egypt and Turkey.
Finding that QNB's performance is no longer solely a function of its domestic market, CI said it also depends on economic performance in Egypt and Turkey and in the countries in which it has branches, subsidiaries and affiliates.
Affirming QNB's financial strength rating (FSR) at ‘AA-' with 'stable outlook, it said the FSR is supported by very good asset quality, strong capitalisation and good profitability, particularly at the operating level.
Although tightening liquidity is the main constraining factor, QNB's deposit base is sound and access to well-diversified global funds is good, CI said, adding the liquidity coverage ratio remains well in excess of the regulatory minimum.
The FSR is constrained to some extent by the relatively tight ratio of loans-to-customer deposits, and by a fairly tight net liquid asset ratio; partly reflective of the sovereign decision in 2014 to begin to deleverage by reducing borrowings and deposits with banks. The quasi liquid asset ratio is, nevertheless, strong while the net quasi-liquid asset ratio is 'satisfactory.
The FSR is also constrained by Qatar's small population size and therefore the opportunities to grow domestic lending, but QNB has mitigated this by diversifying its business organically and through acquisitions, the latest being the purchase of Turkish Finansbank, which has otherwise impacted its 'reasonable cost metrics compared to Qatari banks and its larger regional peers.
'At its current very high level of ‘AA-', QNB's FSR nonetheless remains somewhat pressured on liquidity. However, liquidity conditions domestically have eased, CI said, assuming sufficient liquidity injection by the Qatari government into the banking system, if needed.
In the meantime, QNB is expected to continue to access capital markets to further grow and diversify its longer term funding base.
While the rising exposure to country and foreign exchange (forex) risks on overseas subsidiaries and associates is to some extent a constraint, CI said all foreign subsidiaries are self-funding with future forex risks partially hedged, and hence 'unlikely to exert significant downward pressure on the FSR, unless the cross-border exposure levels increase markedly. Page 20
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