(MENAFNEditorial) Capital Intelligence (CI), the international credit rating agency, today announced that it has maintained Mashreqbank's (MB) Financial Strength Rating (FSR) at 'BBB+', with the Bank's strong liquidity, solid capital adequacy and good operating profitability being major supporting factors.
The Foreign Currency (FC) Ratings are affirmed at 'A-' Long-Term and 'A1' Short-Term. The ratings reflect the demonstrated support of the federal government and the Bank's strong capital base and liquid balance sheet. Given its size and systemic importance, timely assistance from the UAE government in case of need is very likely. The Bank's Support Rating of '3' is therefore maintained. A 'Stable' Outlook is assigned to all the ratings, but there are downward pressures on the FSR and FC ratings in view of the Bank's substantial exposure to Dubai and its government-related entities (GREs), and the continuing uncertainties in the emirate.
While management's focus on maintaining sound liquidity at all times has adversely impacted margins and reduced operating profits, the Bank's main businesses remained profitable and continued to make good contributions to the bottom line. MB's large, recurring non-interest income base has helped the Bank to maintain its good operating profitability even through difficult times. The Bank has also successfully managed its operating costs and despite lower gross income, its cost to income ratio remains satisfactory. Though operating profitability is good, it has declined in recent periods owing to the shrinking loan book. Return on average assets, on the other hand, has been on an upward trend due to reduced risk charges.
Although non-performing loans (NPLs) declined last year, key asset quality ratios remain weak. Dubai-based GREs account for a substantial portion of the Bank's NPLs, but these are likely to be taken off the impaired loans list after a year. NPL accretions have slowed in recent quarters both in the corporate and retail domestic sectors and the Bank expects its risk charge to fall this year. The coverage ratio excluding restructured exposures to GREs and past due loans that the Bank does not consider impaired was moderately good. Impaired loans have a high collateral cover and the Bank's large capital offers further protection.
MB is in the process of building its loan portfolio after shrinking its exposures over the last three consecutive years. It certainly has ample liquidity, which was an area that the Bank's management had focused on strengthening soon after the 2008 crisis, and in recent years MB's liquidity ratios have been the best in its peer group. Although key ratios are likely to tighten as the Bank expands its loan book (thereby strengthening its margins), they are expected to be maintained at a better than sector average level, as in the past. The Bank also has adequate capital to support the increase in risk assets.
MB ranks among the larger commercial banks in the country and is majority owned by the Al Ghurair family who runs major businesses in the UAE. It 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. The Bank operates a reasonably large network of domestic branches. Overseas, it has branches in Egypt, Qatar, Bahrain and Kuwait, as well as in Hong Kong, India, London and New York.
The information sources used to prepare the credit ratings are the rated entity and public information. Capital Intelligence had access to the accounts but no other relevant internal documents for the purpose of the rating, but considers the quality of information available on the issuer to be satisfactory for the purposes of assigning and maintaining credit ratings. Capital Intelligence 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 2011.
The principal methodology used in determining the ratings is Bank Rating Methodology. The methodology and the meaning of each rating category and definition of default, as well as information on the attributes and limitations of CI's ratings, can be found at www.ciratings.com.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.