(The following statement was released by the rating agency)
Dec 17 - Fitch Ratings has affirmed Qatar National Bank's (QNB) Long-term
Issuer Default Rating (IDR) at 'A+' with a Stable Outlook and Viability Rating
(VR) at 'a', following its agreement to acquire a 77.17% stake in National
Societe Generale Bank (NSGB) - Egypt. A full list of rating actions
is at the end of this rating action commentary.
RATING ACTION RATIONALE AND SENSITIVITIES IDRs, SUPPORT RATING AND SUPPORT
The affirmation of QNB's IDRs, Support Rating and Support Rating Floor reflects
Fitch's belief that the Qatari authorities remain highly supportive of QNB given
its dominant franchise, key role in the domestic economy and the government's
50% strategic stake in the bank. Fitch's view of the extremely high probability
of for QNB is based on the ability and willingness of Qatar to support QNB if
Fitch's view is unchanged following the acquisition. QNB's IDRs, Support Rating
and Support Rating Floor remain sensitive to a change in the agency's
assumptions around the propensity or ability of the Qatari authorities to
provide timely support to QNB. Given Qatar's robust economy and the authorities'
strong track record of support for local banks downside pressure is considered
RATING ACTION RATIONALE AND SENSITIVITIES - VR
QNB's VR has been affirmed as the impact of the acquisition on the bank's risk
profile appears to be limited over the rating horizon. NSGB, the second-largest
private bank in Egypt, is about 10% of QNB's size (by total assets) and
therefore a relatively large acquisition. However, based on NSGB's published
9M12 financials, the Egyptian bank displays sound profitability, liquidity and
capitalisation. It is self-funded with a loans/deposit ratio of 72%, as well as
reporting good asset quality with a NPL ratio of 3.4% and reserve coverage of
112% at end-9M12.
Fitch believes QNB's sound financials should be able to absorb any financial
risks from the acquisition, specifically given its robust profitability, healthy
asset quality and solid liquidity and capital position. According to management
guidance, QNB's Tier 1 regulatory capital ratio is likely to fall to around 15%
(currently around 19%) upon consolidation of NSGB, which although low compared
to historical levels remains consistent with QNB's high VR. The deal will help
QNB improve and diversify its earnings and achieving the bank's target of
generating 45% of its revenue internationally by 2017.
The acquisition will be funded from internal resources.
The deal is positive for QNB's ambitions of building a leading MENA franchise
and is its largest ever acquisition. Integration risk is likely to be QNB's
biggest challenge, although Fitch believes that NSGB's governance, policies and
systems are generally sound having benefited from strong operational and
strategic links to the Societe Generale group.
Downside pressure on the VR could result from QNB being unsuccessful in
integrating NSGB during 2013 - risks to the bank could come from the loss of
senior management at NSGB (currently key senior positions are filled by Societe
Generale staff). The entry into Egypt (Long-term IDR of 'B+') also represents a
significant move into a higher risk market and a change in business mix for QNB,
which could affect the bank's asset quality if the operating environment
deteriorates. Fitch is also concerned that QNB may embark on an uncontrolled
acquisition spree, which could also put its high VR at risk.
Fitch will also look to QNB maintaining a high Fitch core capital ratio (9M12:
27%), although in the near term it will be impacted by the acquisition. QNB also
raised QAR12.7bn through a rights issue in April 2011 to support its growth
plans. A persistent decline in the ratio could be negative for the VR.
QNB is the largest bank in Qatar, holding around 45% of system assets. The bank
is 50% owned by the government through the Qatar Investment Authority. The
domestic franchise is complemented by an expanding network of regional and
international associates and subsidiaries in a number of diverse markets such as
Indonesia, Jordan, UAE, Tunisia, Libya and Iraq.
The rating actions are as follows:
Long-term IDR affirmed at 'A+'; Outlook Stable
Short-term IDR affirmed at 'F1'
VR affirmed at 'a'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A+'
Senior unsecured debt affirmed at 'A+'
QNB Finance Limited
Senior unsecured notes (guaranteed by QNB) affirmed at 'A+'
(Caryn Trokie, New York Ratings Unit)