Fitch Ratings has today affirmed the long-term Issuer Default Ratings and placed the Individual ratings of four Dubai-based banks on Rating Watch Negative (RWN)
in light of the continuing uncertainty in the Dubai economy following Dubai World's (DW) request on 25 November 2009 to postpone debt repayments.
The banks affected are Commercial Bank of Dubai (CBD), Emirates NBD (ENBD), Mashreqbank (MB), each with an Individual rating of 'C', and HSBC Bank Middle East (HBME), with an Individual rating of 'B' and the actions reflect Fitch's belief that these banks have significant exposures to DW and other Dubai government-related entities (GREs). Fitch will continue to monitor the situation for all rated UAE banks and expects to resolve these RWN on the Dubai banks over the next two weeks as more information arises. However, the ongoing lack of transparency and information vacuum from official government sources means that the review of the RWN could take longer than this. A full list of rating actions is detailed at the end of this release.
While initially the problems appeared to be limited to DW and its subsidiaries (including Nakheel and Limitless), the Dubai government's rejection of support for the DW group has seen increased concerns about support for other GREs. One such entity, Dubai Holding Commercial Operations Group (DHCOG), was downgraded by Fitch to 'BB' from 'BBB-' on 2 December 2009 and remains on RWN. The lack of clarity about the full extent of the UAE banking sector's exposures to Dubai GREs and the knock-on effects on the wider Dubai economy, combined with higher provision requirements by the Central Bank of the UAE against two Saudi corporates (Saad and Al-Gosaibi), rising retail impairments and narrowing funding options means that 2009 and 2010 profits are likely to be adversely affected.
Fitch's recent capital sensitivity test showed that the UAE banking sector could absorb a fairly significant increase in NPLs. However, problems of a similar magnitude to those of DW at other GREs and within other corporate entities would certainly prove more serious for the financial strength of the UAE banking sector.
CBD was established in 1969 and is a Dubai-based commercial bank. It represents about 2.5% of UAE banking system assets. Its main focus is medium-sized UAE corporates and SMEs and the largest shareholder is Investment Corporation of Dubai (ICD: wholly owned by the Dubai government) with 20%.
ENBD is the largest bank in the UAE and Gulf Cooperation Council (GCC) region by total assets (AED291bn at end-September 2009). It has a respective 20% market share of loans and deposits in the UAE, but this figure is higher in Dubai where its business remains concentrated. It is active in retail, corporate and Islamic banking and also has businesses covering brokerage, insurance, asset management and treasury services. The main shareholder is ICD (56%).
Established in 1967, Mashreqbank is the second-oldest and one of the largest private sector banks operating in the UAE. It offers a wide range of corporate and retail products and services. It has a relatively extensive UAE branch network and has a presence in Qatar. It is the fifth largest bank in the UAE with a share of total assets of about 7% and is about 80%-owned by the Ghurair family, a prominent Dubai-based trading group.
HBME is HSBC Group's main vehicle for its Gulf/Middle Eastern operations, and has a presence across the Middle East (UAE mainly but also Qatar, Bahrain, Kuwait, Oman, Jordan, Lebanon and the Palestinian Territories) supported by a variety of delivery channels.
In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual ratings and the prospect of external support is reflected in Fitch's Support ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs.Global Arab Network