Moody's Investors Service on Tuesday upgraded to C- stable outlook from D+ the financial strength rating (FSR) of Qatar National Bank (QNB). The A3/Prime-2 foreign currency deposit ratings and their outlooks remain unchanged.
According to Moody's, this rating action recognises QNB's consistently satisfactory financial fundamentals, its dominant position within Qatar's domestic banking system and the country's difficult, albeit improving, operating conditions. A strong interrelationship with the State of Qatar -- including a 50% ownership -- assures the bank of the lion's share of state-related business, making QNB the largest financial institution in Qatar with a market share of almost 50% of total banking assets.
According to Moody's, the bank's dominant franchise is underpinned by preferential access to state-related business in an operating environment where the state is, and is expected to remain for the foreseeable future, the main economic agent. To further enhance its franchise, QNB recently acquired the wealth management business of Ansbacher Holdings Limited. This will allow the bank to develop the appropriate wealth management products and services to address the needs of its growing number of high net-worth customers.
Moreover, Moody's noted that the bank enjoys good earning power, reflecting a very low cost base. QNB's interest margin does not compare favourably with its Qatari peers because of QNB's higher reliance on lower yielding, lower risk government and government-related business, and the smaller local banks' emphasis on higher margin retail business. Although QNB's revenue streams remain largely undiversified, exhibiting a high reliance on net interest income, this is expected change following the acquisition of Ansbacher, given the revenue mix of that business. The bank's FSR is also supported by its ample capital and its good asset quality, with a low level of problematic loans.
Moody's explained that the FSR upgrade also takes into account the ongoing improvements in the bank's domestic operating environment. The domestic economy has been growing at very high rates and is expected to continue to do so for some time, supported by high oil prices and record oil production. Furthermore, Qatar is expanding its natural gas sector and developing other gas-based industries and a large-scale industrial and infrastructure programme. Despite Qatar's impressive economic expansion and development during recent years, Moody's noted that the country continues to be dominated by a handful of major corporations, including government-owned ones, thus creating funding and credit concentrations for the banking system as a whole.
Looking ahead, Moody's expects the country's industrialisation programme to bring new and better quality business opportunities for banks in the long run, allowing them to operate in a more developed and diversified operating environment, in which they can build stronger and more diversified franchises and more robust balance sheets.
Headquartered in Doha, Qatar, Qatar National Bank had consolidated assets of QAR34.8 billion (US$9.6 billion) in December 2003.