(MENAFNEditorial) 28th June 2016
Mashreqbank's Ratings Affirmed with a 'Stable' Outlook
Capital Intelligence Ratings (CI Ratings), the international credit rating agency, today announced that it has affirmed the Financial Strength Rating (FSR) of UAE's Mashreqbank (MB) at 'A-'. The rating is supported by the Bank's good asset quality, strong liquidity, large capital base, and sound profitability. The factors constraining the rating are customer concentrations in the deposit base and the challenging operating environment. The Long-Term Foreign Currency Rating (FCR) is maintained at 'A-' and the Short-Term FCR at 'A1', reflecting the Bank's good financial fundamentals and the support of the federal government. Given MB's size and systemic importance, timely assistance from the UAE government in case of need is likely. The Bank's Support Rating of '3' is therefore maintained.
The Bank is well placed to weather the impact of a possible further slowdown in economic growth this year. Even if impairment levels were to rise, MB's strong provision coverage, high capital base and solid earnings (particularly its large, core, recurring non-interest income) should provide a substantial cushion. Any further tightening of liquidity in the banking system this year is also unlikely to seriously impact the Bank given its current sound liquidity ratios. The Bank's Q1 2016 results were good overall, although they do suggest that balance sheet and earnings growth could slow this year. CI Ratings is of the opinion that the Bank's prospects will remain favourable this year and therefore a 'Stable' Outlook is assigned to all ratings.
Following two years of buoyant growth, MB slowed its credit expansion from H2 2015 and into Q1 2016. A slowing economy, stresses in the SME sector and tightening liquidity were some of the concerns that underpinned this decision. The Bank has a moderately well diversified loan book with a low customer concentration level compared to many other banks in the country. MB's asset quality ratios have strengthened over the last several years owing to reduced non-performing loan (NPL) accretions and good recoveries. The delinquencies in its retail book are at a normal level and corporate impairments have been fairly low in recent years. There was some increase in NPLs in Q1 2016 but the NPL and the coverage ratios remain very sound overall. NPLs have carried more than 100% provisions for more than two years now and loan-loss reserves and capital covered NPLs nearly ten times at end 2015.
The Bank has a large capital base. Its Basel II capital adequacy ratio (CAR) was at a solid level at end 2015 with a high Tier 1 ratio. Its capital to total assets ratio was also high. Strong earnings and a moderate dividend payout ratio have contributed to the Bank's good internal capital generation rate over the last several years.
MB's liquidity ratios continue to be amongst the most solid in the sector and, contrary to industry trends, its key ratios strengthened last year, underscoring the management's strong focus on ensuring good liquidity at all times. The customer deposit base is being increasingly diversified and maturity mismatches have narrowed to moderate levels and are better than those of many of the larger banks in the country. Customer concentration in the deposit base is high in the global context, but is not high for a bank in the UAE.
The Bank's key profitability ratios continue to be strong. However, operating profit recorded a small decline in 2015 owing to reduced net interest income growth (on the back of narrower margins), lower investment-related income, and a fall in the income generated by its insurance subsidiary. Key ratios continue to be much better than the peer group average thanks in part to MB's sizeable and well-diversified non-interest income base. Although net profit declined last year, the return on average assets (ROAA) was still strong and remained above the peer group average.
With total assets of AED115 billion at end 2015, MB ranks among the larger commercial banks in the country. It is majority owned by the Al Ghurair family which operates major businesses in the UAE. The Bank has a diversified business with multiple revenue streams; its key businesses from the point of view of revenue generation are retail banking and corporate banking. MB operates a reasonably large network of domestic branches and overseas branches in Egypt, Qatar, Bahrain and Kuwait as well as in Hong Kong, India, London and New York.
CONTACT
Primary Analyst
Karti Inamdar
Senior Credit Analyst
Tel: +91 124 401 2142
E-mail: karti.inamdar@ciratings.com
Secondary Analyst
Tom Kenzik
Senior Credit Analyst
E-mail: tom.kenzik@ciratings.com
Rating Committee Chairman
Morris Helal
Senior Credit Analyst
The information sources used to prepare the credit ratings are the rated entity and public information. CI considers the quality of information available on the issuer to be satisfactory for the purposes of assigning and maintaining credit ratings. CI does not audit or independently verify information received during the rating process.
The rating has been disclosed to the rated entity and released with no amendment following that disclosure. Ratings on the issuer were first released in September 1987. The ratings were last updated in June 2015.
The principal methodology used in determining the ratings is the Bank Rating Methodology. The methodology, the meaning of each rating category, the time horizon of rating outlooks and the definition of default, as well as information on the attributes and limitations of CI's ratings, can be found at www.ciratings.com. Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at http://cerep.esma.europa.eu.
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