QATAR NATIONAL BANK (Q.P.S.C.)
Fitch Ratings has assigned
Key Rating Drivers
MB's IDRs are driven by potential support from its Qatari-based parent,
MB's VR reflects its weak operating environment, small franchise and high concentrations. The VR also reflects MB's high exposure to the sovereign, improving loan quality and profitability, and high capital and liquidity ratios. MB's VR is below the 'b-' implied VR due to its business profile.
Support Capped: MB's SSR underscores MB's strategic importance for the QNB network. However, our assessment of transfer and convertibility risks, as reflected in
Weak Operating Environment: Fitch's assessment considers the economy's high dependence on the cyclical oil sector, the deep involvement of the state in supporting growth, weak governance and regulatory frameworks, a fragile business environment and an undeveloped banking sector exposed to high compliance and foreign-currency (FC) risks. Fitch forecasts
Small Franchise; Increasing Integration: MB is a privately-owned bank with a small market share (less than 1% of banking-sector assets). The bank reported a high share of non-interest income (2023: 58% of operating income), which mostly comprised fees and commissions and FC trading gains earned through the
High Concentration Risk: MB's loan book is small (end-2023: 17% of total assets) and highly concentrated (end-2023: largest 20 loans were 60% of gross loans; 44% of equity). Sovereign exposure is high at 2.3x CET1 capital through placements with the CBI and sovereign securities. MB's good risk management, underpinned by oversight from its parent (including approval of MB's largest exposures), mitigates lending concentration risk.
Sovereign Risk; Lower Stage 3 Loans: Asset quality is conditioned by its high sovereign exposure and interbank placements, including with QNB (end-2023: together 79% of total assets). MB's Stage 3 loans ratio declined to 15.4% at end-2023 (end-2019: 67.7%) due mainly to recoveries.
Improving Profitability: MB's profitability improved in 2023 due mainly to stronger non-interest income (58% of operating income), but also due to higher interest rates, margins and business volumes, good cost efficiency and low impairment charges. Operating profit increased to 12.7% of risk-weighted assets (RWAs) in 2023 (2022: 5.2%), supported by low RWA density.
High Capital Ratios: MB's total capital adequacy ratio (end-2023: 83.4%) is well above the regulatory minimum of 12.5%, reflecting a solid capital buffer and low RWA density. Fitch expects MB to raise capital, supported by QNB, to meet its new minimum capital requirements.
High Liquidity Mitigates Deposit Concentration: MB is almost fully customer deposit-funded with higher-quality liquid assets, in the form of cash, placements with the CBI and QNB, sovereign securities fully covering customer deposits at end-2023. This mitigates funding concentration risk (the 20 largest depositors were 45% of customer deposits at end-2023).
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of MB's IDR would be driven by a downgrade of its SSR, due to a weakening in QNB's ability or propensity to provide support (not our base case), and would most likely result from a downgrade of
A deterioration of the domestic operating environment would likely result in a downgrade of the bank's VR. A downgrade of the sovereign rating could also result in a downgrade of the bank's VR. A rapid expansion in lending in
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of MB's IDR would require an upgrade of its SSR, driven by an upgrade of
An upgrade of the bank's VR would require a meaningful strengthening of its franchise and business model, most likely resulting from greater leveraging its links with QNB to achieve greater diversification, including through access to good-quality customers such as large multinational companies operating in
An upgrade of MB's VR could be driven by an upward revision of the operating environment assessment, likely to be driven by significant diversification of the economy, and a stronger governance and business climate in
VR ADJUSTMENTS
The operating environment score of 'ccc+' is below the 'b' category implied score due the following adjustment reasons: size and structure of economy (negative) and financial market development (negative).
The business profile score of 'ccc+' is below the 'b' category implied score, due to the following adjustment reasons: business profile (negative) and market position (negative).
The earnings and profitability score of 'ccc+' is below the 'bb' category implied score, due to the following adjustment reasons: earnings stability (negative) and risk-weight calculation (negative).
The capitalisation and leverage score of 'b-' is below the 'bb' category implied score, due to the following adjustment reason: risk profile and business model (negative).
The funding and liquidity score of 'b-' is below the 'bb' category implied score, due to the following adjustment reason: deposit structure (negative).
Date of Relevant Committee
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
MB's IDRs are driven by support from QNB.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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