OREANDA-NEWS. Fitch Ratings has affirmed Qatar National Bank's (QNB) Long-term Issuer Default Rating (IDR) at 'AA-' with a Stable Outlook. At the same time the agency has placed QNB's Viability Rating (VR) of 'a' on Rating Watch Negative (RWN) following QNB's proposed acquisition of Finansbank. A full list of rating actions is available at the end of this rating action commentary.

The RWN primarily reflects Fitch's view that this acquisition will increase QNB's overall risk profile. Finansbank (BBB-/Stable/bbb-) is a fairly well-capitalised and profitable bank, but the Turkish operating environment is significantly weaker and more volatile than that of QNB's home market in Qatar. We also take into account the effect of this acquisition on QNB's capital levels. The RWN will be resolved on completion of the acquisition, following regulatory approval from the Qatari and Turkish authorities. Fitch does not anticipate a downgrade of more than one notch.

KEY RATING DRIVERS
IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR
QNB's IDRs, Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's expectation of support from the Qatari authorities for domestic banks in case of need. Fitch's expectation of support from the authorities reflects Qatar's strong ability to provide support to its banks, as indicated by its rating (AA/Stable), combined with Fitch's belief that there would be a strong willingness to do so. The latter is based on a history of sovereign support including recent years' measures to boost capital as well as asset purchases.

The government has demonstrated strong commitment to its banks and key public-sector companies and we expect this to continue despite the effects of lower oil prices. The sovereign's capacity to support the banking system is sustained by its sovereign wealth funds and on-going revenues, mostly from its hydrocarbon production. Fitch makes a distinction between QNB's SRF and that of the other banks in Qatar as a result of its status as the flagship bank in the sector, its role in the Qatari banking sector and close business links with the state. In addition, the government owns a 50% stake in QNB.

The Stable Outlook reflects the Outlook on the Qatari sovereign.

VR
QNB's VR reflects its dominant franchise in Qatar, close links to the Qatari government, strong funding profile with sound liquidity and solid capital position. Profitability is stronger than that of most peers. Risk appetite is fairly conservative despite rapid growth and expansion into some higher-risk markets. High loan and deposit concentrations, which would otherwise constrain the rating, are mitigated by QNB's largest borrowers and depositors being primarily lower risk Qatari government-related entities.

The acquisition of Finansbank will weaken QNB's risk profile, but QNB has a good track record of integrating and managing subsidiaries in weaker operating environments. In addition the agency considers that Turkey could be an opportunity for strengthening profitability and diversifying growth in the longer-term; an opportunity that is not available in QNB's fairly small undiversified domestic economy.

RATING SENSITIVITIES
IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR
QNB's IDRs, SR and SRF are sensitive to a change in Fitch's assumptions around the Qatari authorities' propensity or ability to provide timely support to the bank. At present Fitch considers the likelihood of any change to be small.

VR
Following resolution of the RWN once the acquisition is completed, QNB's VR would be sensitive to its growth strategy in Turkey and other weaker operating environments. Rapid growth in lower-rated markets that would further weaken the bank's risk profile could put pressure on the VR in the longer term. Capital weakening or significant asset quality deterioration in the bank's domestic market could also pressure the VR, but we view this as less likely.

The rating actions are as follows:

Qatar National Bank
Long-term IDR affirmed at 'AA-', Outlook Stable
Short-term IDR affirmed at 'F1+'
Viability Rating: 'a'; placed on RWN
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'AA-'.