Moody's Investors Service has today downgraded the ratings of three Dubai-based banks -- Emirates NBD, Mashreqbank PSC and Dubai Islamic Bank PJSC.
These ratings were placed under review in August 2009 in response to a weakening of economic conditions in Dubai. Today's rating actions reflect the ongoing deterioration in Dubai's economy, as exacerbated by the uncertainty created by the announced restructuring of Dubai World and its subsidiary Nakheel, the property development company.
The specific rating changes for each affected bank are as follows:
- Emirates NBD: Moody's has downgraded the bank's deposit ratings to A2/P-1 from A1/P-1. These ratings remain on review for further downgrade. The senior unsecured debt ratings of Emirates Bank International PJSC, National Bank of Dubai PJSC and the sukuk ratings of Emirates Islamic Bank PJSC were also downgraded to A2 and also placed on review. The subordinated debt ratings were downgraded to A3 (on review). The action was driven by the downgrade of Emirates NBD's bank financial strength rating (BFSR) to D+ (mapping to Ba1) from C- (mapping to Baa2). The BFSR also remains on review for possible downgrade.
- Mashreqbank PSC: Moody's has downgraded the bank's debt and deposit ratings to Baa1/P-2 from A2/P-1 and changed the outlook to negative. The senior unsecured debt ratings were downgraded to Baa1 from A2 and the subordinated debt ratings to Baa2 from A3. The action was driven by the downgrade of Mashreqbank's BFSR to D+ (mapping to Baa3) from C- (mapping to Baa1). All ratings now carry negative outlooks.
- Dubai Islamic Bank PJSC ("DIB"): Moody's has downgraded the bank's issuer ratings to Baa1/P-2 from A1/P-1 and changed the outlook to negative. The senior unsecured debt (sukuk) ratings were downgraded to Baa1 from A1. The action was driven by the downgrade of DIB's BFSR to D- (mapping to Ba3) from D+ (mapping to Baa3). All ratings now carry negative outlook.
Moody's said that the rating downgrades reflect the weakening in Dubai's economy and the repercussions on the banks' asset quality and earning power. Exposure concentrations to the construction and property sector, as well as Dubai government-related entities, are significant and could entail material losses . The direct exposures to Dubai World are manageable given high capitalization levels. However, the rating agency notes that the negative investment sentiment that has been sparked by the restructuring could have longer-lasting effects on Dubai's economy and could constrain the banks' ability to access debt capital markets in a cost-effective manner for longer than was previously expected. In this respect, Moody's believes that going forward, managing liquidity will be a key focus, rather than loan growth, for the banks whose businesses are concentrated in the Dubai Emirate. This strategy, while necessary in the short term, could be detrimental to the banks' medium-term franchise value and growth prospects, relative to UAE banks that operate primarily in the Abu Dhabi Emirate..
Moody's also expects that the Dubai World standstill, and the risk of contagion, could erode private sector asset quality, which is already burdened by the property market meltdown in Dubai. Continuing rating reviews and negative outlooks reflect these concerns.
Moody's previous rating actions for Emirates NBD, Mashreqbank and Dubai Islamic Bank were implemented on 10 August 2009 when the rating agency placed their ratings on review for possible downgrade.
Emirates NBD PJSC (holding company of EBI and NBD) is headquartered in Dubai and reported AED291 billion (US$79 billion) total assets as of 30 September 2009.
Mashreqbank is headquartered in Dubai and reported AED100 billion (US$27billion) total assets as of 30 September 2009.
Dubai Islamic Bank is headquartered in Dubai and reported AED73.6 billion (US$20 billion) total assets as of 30 September 2009.Global Arab Network