Doha: Moody’s Investors Service (Moody’s) yesterday affirmed the Commercial Bank’s (CBQ) bank deposit ratings at A3/Prime-2 and maintained the stable outlook on the long-term ratings. At the same time the rating agency affirmed CBQ’s ba1 Baseline Credit Assessment (BCA) and Adjusted BCA, its A2/Prime-1 Counterparty Risk Ratings (CRRs) and A2(cr)/Prime-1(cr) Counterparty Risk (CR) Assessment.
Concurrently, the rating agency placed on review for upgrade National Bank of Oman’s (NBO) ba3 Adjusted BCA, Ba3 long-term deposit ratings, Ba3 senior unsecured ratings, Ba2 long-term local currency CRR and Ba2(cr) long-term CR Assessment. At the same time, the rating agency affirmed NBO’s ba3 BCA, Ba2 long-term foreign currency CRR and all its short-term ratings and assessments at NP and NP(cr).
Yesterday’s rating action follows CBQ’s recent offer to the shareholders of National Bank of Oman (NBO) to acquire an additional 15.2 percent stake in NBO, which if successful would increase its shareholding in the bank to 50.1 percent. Following the potential increase in shareholding CBQ would consolidate NBO as a subsidiary. The offer period to the shareholders opened on June 10, 2021 and closes on July 11, 2021.
The ratings affirmation and stable outlook reflect Moody’s expectation that following a successful acquisition of a controlling stake in NBO, the credit profile of CBQ would remain commensurate with its existing ba1 BCA despite increased exposure to Oman’s more challenging operating environment (Weak+ Macro Profile) and the slightly weaker financial profile of NBO. This reflects both ongoing improvement in CBQ’s financial metrics in recent years in line with the bank’s strategy and the expected recovery in its regulatory capital ratios after the acquisition in line with its long-term targets to raise capital buffers.
Moody’s estimates that following a potential consolidation of NBO, CBQ’s exposure to Oman will account for approximately 18 percent of assets, based on year-end 2020 figures. The bank’s consolidated problem loans ratio (stage 3 loans, net of interest in suspense to gross loans) will increase modestly to a pro-forma 3.7 percent immediately following the transaction given NBO’s higher 5.1 percent problem loan ratio as of March 2021. The consolidation of NBO would reverse the recent improving trend of CBQ’s problem loan ratio which had progressively declined to 3.3 percent as of March 2021, from 5.0 percent at the end of 2018.
CBQ continues to focus on exiting riskier sectors and borrowers, while growing its exposure to lower-risk Qatari government and government-related entities, at 19 percent of total loans as of March 2021 up from 16 percent a year earlier. A successful offer to acquire a controlling stake in NBO, would also allow CBQ to implement more stringent risk management standards at the Omani entity.
Moody’s expects CBQ’s profitability to be sustained after a potential consolidation. CBQ’s net income to tangible assets was 1.1 percent in 2020.
CBQ’s A3 deposit ratings continue to incorporate four notches of government support uplift from the bank’s ba1 BCA because of Moody’s assessment of a very high probability of government support, in case of need, from the Qatari authorities. This expectation is based on the strong track record of support by the Qatari government, which pre-emptively supported banks in Qatar in the past; and the government’s 16.8 percent shareholding in CBQ.
In addition to the transaction-related drivers outlined earlier, the stable outlook on CBQ’s long-term ratings balances the bank’s adequate capital and liquidity, and improved risk management against its balance sheet concentrations and high reliance on market funding. The stable outlook also takes into account the stable outlook on the Qatari government’s rating.
