(MENAFNEditorial) 28th June 2016
First Gulf Bank'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 the UAE's First Gulf Bank (FGB) at 'A+' based on the Bank's solid capitalisation, good asset quality and strong profitability. The rating is constrained by tightening liquidity ratios, continuing high customer concentration levels in the deposit base, and a challenging operating environment. A 'Stable' Outlook is appended to the FSR based on CI Ratings' view that the Bank could meet the challenges on the liquidity front through its current funding strategies. A further tightening of the Bank's liquidity ratios could, however, put downward pressure on the rating.
For similar reasons as above, the Bank's Long-Term Foreign Currency Rating (FCR) is maintained at 'A+' with a 'Stable' Outlook and the Short-Term FCR at 'A1'. The Support Rating of '2' reflects FGB's ownership by the ruling family of Abu Dhabi and the demonstrated support by both the government of Abu Dhabi and the federal government. The Bank benefits from substantial official support and has good financials overall and able management.
FGB's biggest challenge this year is to manage its tightening liquidity position. The reduction in government/public sector deposits in 2015 and the loss of some corporate funds in Q1 2016 – following withdrawals by regional entities affected by tightening liquidity in their home markets – have led to slow growth in customer deposits in both periods. Though tighter than the peer group average, FGB's key liquidity ratios are still at acceptable levels. Customer concentration levels remain high, in common with other Abu Dhabi banks, reflecting the sizeable funding that the Bank receives from the government. The liquid asset ratio has tightened and remains weaker than the peer group average. However, the Bank does have a moderately large stock of good quality non-government marketable securities (mainly banks and top corporates), which can be discounted through the central bank window or sold to raise additional liquidity in an emergency.
FGB's asset quality remains sound with a low level of non-performing loans (NPLs) and high loan-loss reserve (LLR) coverage and effective NPL coverage ratios. There was an increase in impaired loans last year owing to delinquencies in the SME trading book and the classification of corporate exposure overseas (secured by collateral). However, watch listed loans continued to fall as in previous years and past due loans less than 90 days old remained low. Renegotiated loans declined again in 2015 and are also very low. Customer concentration levels are moderately low compared to its peers in Abu Dhabi. Q1 2016 saw a decline in NPLs and an improvement in key asset quality ratios.
FGB continues to maintain a solid capital adequacy ratio (CAR) as in previous years, with a high Tier 1 component. This is partly due to the low growth in risk-weighted assets last year. With risk-weighted asset growth expected to be low again this year, FGB's CAR is likely to stay at a high level at end 2016.
The Bank is very profitable with high return on average assets (ROAA) and operating profit to average total assets ratios. Although both ratios declined in 2015, they continued to be above the peer group average. In fact, the sector averages of both ratios have been trending downwards in recent years due to falling margins. FGB's wide net interest income margin, its good non-interest income base, and low operating costs substantially underpin its strong profitability. Rising funding costs could put some pressure on margins this year and earnings growth is likely to be subdued. Still, CI Ratings expects the Bank to maintain its overall good profitability ratios.
FGB is presently engaged in preliminary talks with the country's largest bank, majority Abu Dhabi government-owned National Bank of Abu Dhabi (NBAD), for a possible merger. NBAD, with total assets of USD111 billion at end 2015 is rated by CI Ratings at AA- (Foreign Currency Long-Term) and A+ (Financial Strength). The merger, if it takes place, is likely to have more favourable than unfavourable implications for the credit profiles of the banks concerned.
FGB was established in 1979. Its shareholding structure changed in 1996, with four senior members of the ruling family of Abu Dhabi taking a sizeable interest in the Bank. At year-end 2015, with AED227 billion of assets, it ranked third among the local banks in the country. Its core activities are wholesale banking, consumer banking and treasury and global markets. FGB's operations are based primarily in the UAE, although the Bank has long-term plans to expand overseas. The Bank is currently engaged in preliminary talks with the country's largest bank, National Bank of Abu Dhabi, for a possible merger.
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 1995. 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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