S&P: Negative Rating Actions Taken On Qatari Banks

FILE PHOTO: Traders monitor screens displaying stock information at Qatar Stock Exchange in Doha, Qatar June 5, 2017.

• On June 7, 2017, S&P lowered its long-term sovereign credit rating on the State of Qatar to ‘AA-‘ and placed it on Credit Watch with negative implications. In S&P’s view, the moves by a group of governments to cut diplomatic ties and trade and transport links with Qatar will exacerbate the country’s external vulnerabilities and could put pressure on its economic growth and fiscal metrics.

• The Qatari banking sector has a significant reliance on external funding, which S&P identified as a source of tail event risk. At the same time, S&P regards Commercial Bank (P.S.Q.C.) (CBQ), Doha Bank Q.S.C., and Qatar Islamic Bank (S.A.Q) (QIB) as highly systemically important banks and the authorities of Qatar as highly supportive of its banking system. S&P also considers Qatar National Bank S.A.Q (QNB) to be a government-related entity that has a very high likelihood of receiving extraordinary government support in case of need.

• S&P is lowering its long-term rating on QNB to ‘A’ from ‘A+’ and placing our long- and short-term ratings on QNB, CBQ, Doha Bank, and QIB on CreditWatch negative as a direct consequence of rating actions on the
sovereign.

• Placing the rating on CreditWatch negative also reflects our view that Qatari banks’ funding or liquidity profile might weaken as a result of the recent developments.
S&P Global Ratings today lowered its long-term counterparty credit rating on Qatar National Bank S.A.Q (QNB) to ‘A’ from ‘A+’. At the same time, we placed the ratings on QNB, Commercial Bank (P.S.Q.C.) (CBQ), Doha Bank Q.S.C., and Qatar Islamic Bank (S.A.Q) (QIB) on CreditWatch with negative implications (see rating list below).

These rating actions reflect S&P’s recent action on the sovereign rating on Qatar. They also reflect S&P’s view that Qatari banks’ funding or liquidity profile might weaken as a result of recent developments.

On June 5, 2017, a group of states–including Saudi Arabia, the United Arab Emirates (UAE), Bahrain, Egypt, Libya, and Yemen–moved to cut diplomatic ties and trade and transport links with Qatar. The measures imposed include a blockade of land, sea, and air access and the expulsion of Qatari officials, residents, and visitors from the group of states. S&P says it considers this will exacerbate Qatar’s external vulnerabilities and could put pressure on economic growth and fiscal metrics. S&P have therefore downgraded the long-term sovereign rating on the State of Qatar to ‘AA-‘ from ‘AA’ and placed it on CreditWatch negative.

As the CreditWatch placement encompasses numerous downside risks to the ratings as a consequence of recent events. At this stage, S&P notes that it is unclear how Qatar will respond and the extent to which these measures will be enforced, or for how long. As further details emerge, S&P expects to review these aspects and their potential impact on the global ratings agency’s projections. The next scheduled S&P review of the sovereign rating is due on Aug. 25, 2017.

At the moment, S&P sees CBQ, Doha Bank, and QIB as systemically important banks in Qatar and the Qatari authorities as being highly supportive of the banking system. The ratings on these three banks include three notches of support above their respective stand-alone credit profiles (SACPs). Therefore, S&P has placed the long- and short- term ratings on these banks on CreditWatch negative as a further lowering of the sovereign rating would be likely to affect them.

S&P classifies QNB as a government-related entity that has a very high likelihood of extraordinary support, in case of need. As a result of the sovereign downgrade, S&P now incorporates three notches of support in its long-term rating on QNB, rather than four, and have therefore lowered the rating on QNB to ‘A’ from ‘A+’. Again, its long- and short- term ratings on QNB have been placed on CreditWatch negative because a further lowering of the sovereign rating would be likely to affect it.

Moreover, S&P has previously identified Qatari banks’ increasing dependence on external funding as a potential source of tail risk in the event that these funds suddenly dry up.

The Qatari banking system’s total net external debt stood at about Qatari riyal 182 billion on April 30, 2017. The majority of these funds are from Asia and Europe. S&P believes that recent events have the potential to reduce external funding sources.

Although S&P does not expect this to pose an immediate significant risk to Qatari banks, it could mean that government support could be needed to offset a potential major outflow.

S&P further warned that should it observe a significant deterioration in the funding or liquidity profiles of Qatari banks, their SACPs and ratings would come under pressure.
The agency’s assessment of the Qatari banks’ creditworthiness would be revised downward if a deterioration of their operating environment had an impact on their financial profile, especially their asset quality or
capitalization.

The CreditWatch placement encompasses downside risks to S&P’s ratings on the banks as a consequence of recent events. S&P says it will review these as further details emerge, warning it could lower the ratings on these banks if it were to take similar action on the sovereign ratings. S&P could also lower the ratings on these banks if there was a significant deterioration in their funding or liquidity profiles.

Should S&P remove the ratings from CreditWatch and affirm them after taking the same action on the sovereign rating, then it would expect the embargo to be short-lived or that Qatar had responded in a way that would maintain its credit metrics in line with its current expectations. At the same time, S&P would not expect to observe a significant deterioration in Qatari banks’ funding and liquidity profiles or operating environment.

RATINGS LIST

To From
Doha Bank Q.S.C.
Counterparty Credit Rating A-/Watch Neg/A-2 A-/Negative/A-2

Qatar Islamic Bank (S.A.Q)
Counterparty Credit Rating A-/Watch Neg/A-2 A-/Negative/A-2

Qatar National Bank S.A.Q
Counterparty Credit Rating A/Watch Neg/A-1 A+/Negative/A-1
Senior Unsecured A/Watch Neg A+

QNB Finance Ltd.
Senior Unsecured (1) A/Watch Neg A+

The Commercial Bank (P.S.Q.C.)
Counterparty Credit Rating BBB+/Watch Neg/A-2 BBB+/Negative/A-2

CBQ Global Ltd.
Commercial Paper (2) A-2/Watch Neg A-2

CBQ Finance Ltd.
Senior Unsecured (2) BBB+/Watch Neg BBB+
Subordinated (2) BBB/Watch Neg BBB

(1)Guaranteed by Qatar National Bank.
(2)Guaranteed by The Commercial Bank (P.S.Q.C.).

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