Fitch affirms QNB at 'A+' upon acquisition announcement; stable outlook

Rating action rationale and sensitivities idrs, support rating and support rating floor

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 needed.

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 low.

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.