Fitch Ratings has today maintained the Individual ratings of five Dubai-based banks on Rating Watch Negative (RWN) to allow the agency more time to assess ongoing developments at Dubai World (DW) and their impact on the wider Dubai economy.
Fitch expects to resolve the rating watches over the next two-to-three months, allowing time for more information to arise and for the agency to review all of the rated banks' audited 2009 financial statements.
The five banks include Commercial Bank of Dubai (CBD), Emirates NBD (ENBD), Mashreqbank (MB), each with an Individual rating of 'C', and HSBC Bank Middle East (HBME) and Dubai Bank (DB) which have respective Individual ratings of 'B/C' and 'C/D'. (CBD, ENBD and MB's Individual ratings were placed on RWN on 3 December 2009, HBME's Individual rating was downgraded to 'B/C' and maintained on RWN on 11 December 2009, whilst DB's Individual rating was placed on RWN on 27 November 2009.)
The 14 December 2009 announcement of an injection of USD10bn by the government of Abu Dhabi into the Dubai Financial Support Fund to repay Nakheel's USD4.1bn sukuk obligation due on the same day and to support DW through 30 April 2010 goes some way to easing Dubai-based banks' exposures. However, the provision of these funds is contingent upon the continuation of the restructuring of DW's other obligations (USD26bn as announced on 1 December 2009, which included the Nakheel sukuk). It appears as though this support for DW and Nakheel was tactical in nature and does not appear to be a reversal of recent comments regarding state support.
Fitch believes that confidence in Dubai and also the United Arab Emirates (UAE) has been adversely affected by the problems at DW since its request to postpone debt repayments on 25 November 2009. The agency believes significant uncertainty persists about the likely resolution of the UAE banking system's direct exposures to the DW group and to other Dubai government related entities. In addition, this uncertainty could have a further significant negative impact on the banks' profitability and capitalisation - if DW's problems spread into the wider Dubai economy - in terms of rising retail impairments, other corporate failures and higher bank funding costs. The agency will continue to monitor the impact of these issues on all the banks it rates in the UAE and does not rule out negative rating actions being taken on non-Dubai based banks.
Part of the announcement of support from Abu Dhabi, was a statement from the UAE Central Bank that it would support local banks that had exposures to DW, although there was no other detail to indicate any new support measures in addition to those previously announced. Fitch already expects an extremely high level of support to be provided to the UAE banking system by the UAE authorities in case of need.
The government of Dubai's introduction of a 'comprehensive reorganisation law' on 14 December 2009, based on regulation employed by the Dubai International Financial Centre (DIFC), may make DW's restructuring process easier and speed up clarification of its impact on the domestic banking sector.Global Arab Network