Class of 2019: QNB
The Qatari bank is investing at home and abroad, growing its loan book and building strong operations in Egypt and Turkey.
Qatar National Bank has maintained its position as one of the Gulf’s strongest banks – despite a regional embargo that may have hampered weaker institutions – by maintaining a high-quality domestic asset base and pursuing opportunities in new markets.
The bank would no doubt benefit from a thaw in regional tensions, but the blockade has done little to impact its position as the largest bank in the Middle East and Africa, according to group chief executive Abdulla Mubarak Al-Khalifa.
“Domestically, [the embargo] has contributed to accelerate measures to reinvigorate the economy by fostering innovation, creativity and the drive towards self-sufficiency,” he says.
Recent signs of a thaw in the 30-month feud have raised expectations for a softening of the embargo after Qatar said its emir had been invited to attend December’s summit of Gulf Corporation Council members, an event he did not attend in 2018. But analysts warn against viewing the invitation as a sign of substantially improving relations.
In fact, the embargo has served to accelerate measures to stimulate the domestic economy, in which QNB has played a central role.
“A number of sizeable food security, manufacturing, tourism and infrastructure (including utilities) projects have been initiated that QNB is instrumental in supporting,” says Al-Khalifa.
“Furthermore, several new trading partners and routes have been established. As we are already present in several of these markets, these flows have provided us with another stream of new opportunities to capitalize upon.”
Analysts agree that the bank has seen little negative impact from the exclusion.
“If you look at the numbers, the bank has not suffered at all,” says a Dubai-based analyst. “UAE was a small part of their business. The only real issue is they own CBI. Will they sell it or just keep it going with minimal input?”
QNB owns a 40% stake in Abu-Dhabi listed Commercial Bank International (CBI).
Rather than dwell on the regional business it is no longer able to do, QNB has worked with the government to stimulate Qatar’s local economy. Alongside development related to the 2022 Fifa World Cup, it has financed improvements in roads, sewage and other basic infrastructure projects that will help to drive greater economic diversification and boost private-sector engagement.
QNB made a net profit of $3.08 billion in the first nine months of 2019, an increase of 4% from a year earlier, while its net interest margin stood at 2.58%. Profitability remains solid, with returns on equity close to 20% and an efficiency ratio improving to 25.7%.
Total assets reached $250 billion, an increase of 7% from September 30, 2018, the highest ever achieved by the group. Its growth in assets was driven by an 8% year-on-year growth in loans and advances, which reached $179.4 billion in the third quarter of 2019.
QNB’s loan book has grown 15% in the last five years, but its asset quality remains one of the highest in the region. Non-performing loans account for just 1.9% of the total. This is largely because, due to the bank’s traditionally conservative approach, most of its lending is to high-quality entities in Qatar (72%) with 34% of this going to government and government-related agencies. It retains an overall coverage ratio of 104%.
QNB’s strength in its home market is bolstered by its international operations and it is continuing to push into Asia, Africa and Europe. This year, QNB has obtained regulatory approvals from the Hong Kong Monetary Authority to open a full-service branch in Hong Kong, a key global financial hub.
“The new markets of relevance are considered from the following perspectives: the macroeconomic outlook, banking sector penetration and growth potential, the ability to follow QNB’s existing customers, balancing QNB’s risk appetite and regulatory requirements for market entry,” says Al-Khalifa. “Banks with solid and strong operations in more than one country will be definitely favoured.”
As of September 2019, the bank derived 29% of its loan portfolio from outside of Qatar,Turkey and Egypt represent 11% and 5% respectively. Profit contribution from the international network stood at 34% at the end of the third quarter of 2019.
Profits at QNB AlAhli, QNB’s Egyptian operations, rose 30% year on year to $313.5 million, with a net interest margin of 5.72%. Turkish operation Finansbank managed to navigate a tough operational environment to post a 50% year-on-year increase in net income in 2018. But while the Turkish market was showing some signs of recovery in 2019, Finansbank’s profits were down 7% in the first three quarters.
Like all of the region’s banks, analysts warn QNB’s focus on asset quality could come at the expense of growth.
“The challenge for Gulf banks is you can either have growth or asset quality, but you can’t have both, as any growth will be the wrong type of growth,” says a Dubai-based debt capital markets banker.
Analysts at S&P Global caution that QNB’s “aggressive” strategy of geographic expansion could expose it to greater risks and lower-quality assets.