(MENAFNEditorial) 27 November 2012
Capital Intelligence (CI), the international credit rating agency, today announced that it has reduced Emirates NBD's (ENBD) Financial Strength Rating (FSR) to 'BBB+' from 'A-' in view of the Bank's weaker asset quality metrics compared with other similarly rated banks in the region. The main factors supporting the rating are the Bank's strong capital adequacy ratio and good operating profitability, which is likely to be able to support an increased level of provisioning should it become necessary.
ENBD's Long-Term Foreign Currency Rating (FCR) is reduced by one notch to 'A' from 'A+' in view of the higher level of impaired loans. The Short-Term Rating is affirmed at 'A1' and the Support Rating at '1'. These ratings are underpinned by the extremely high likelihood that the government of UAE would provide support in case of need. The Dubai government and the UAE government have demonstrated support over the last few years through Tier I and Tier II capital injections. The Bank's good operating profitability and capital adequacy are also factors that support the FCRs. The Outlook for the FSR and FCR is changed to 'Stable' from 'Negative'.
ENBD is a major player in the country with a large share of the banking business in Dubai. After implementing strategies to strengthen the Bank in the post-2008 period, ENBD moved into the growth phase from 2011 and its present strategies aim to accelerate the pace of growth over the coming quarters. The Bank reported low earnings for the second consecutive year in 2011 largely due to high impairment charges on loans and Islamic financing as well as due to the write-down of its investment in an associate. However, its key businesses continued to turn in good performances and the Bank's operating profit remained reasonably high. H1 2012 results showed an increase in operating profit on the back of strong growth in fees, commissions, foreign exchange income and securities trading profits as well as reduced revaluation losses on properties. Overall, the Bank remains profitable, but earnings continue to be under pressure owing to continuing high loan impairment charges.
The year 2011 saw a large number of impairments in the corporate loan portfolio and the year was perhaps the most difficult for the Bank in recent times from the point of view of asset quality. The Bank also had to classify more exposures to Dubai government-related entities (GREs) as impaired; these loans have either been restructured or are in the process of being restructured and hence provisioning levels on these exposures have been maintained at low levels resulting in an overall low coverage ratio. There were further impairments in the corporate portfolio in H1 2012. Management is committed to strengthening the coverage ratio from its current low levels and therefore provision charges are expected to remain high for the next few years.
After having improved the overall liquidity position from very stretched levels at end 2008, ENBD's key ratios had weakened in 2011 due to a decline in customer deposits and an increase in short-term interbank liabilities. Customer deposits fell partly due to management's decision to reduce wholesale 'purchased' deposits which were not relationship-based. However, the situation improved in the first half of 2012 on the back of a substantial increase in customer funds and a reduced level of interbank liabilities, but ENBD's key ratios continue to be tight when compared with the sector average. On the positive side, the Bank has raised substantial medium-term funding at an acceptable price to finance the repayment of maturing medium-term liabilities, and the Bank's asset/liability maturity mismatches continue to be lower than those of many other large banks in the country.
With total assets of nearly USD80 billion (at end-June 2012), ENBD is currently the largest banking group in the Middle East and North Africa region. The government of Dubai, through the Investment Corporation of Dubai, is the single largest shareholder of ENBD with a 55.6% stake. ENBD's major business units are Wholesale Banking, Consumer Banking and Wealth Management, Global Markets & Treasury and Emirates Islamic Bank.
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The information sources used to prepare the credit ratings are the rated entity and public information. Capital Intelligence had access to the accounts and other relevant internal documents of the issuer for the purpose of the rating and 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 November 2009. The ratings were last updated in November 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.
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