Global Arab Network | UAE-based National Bank of Umm Al-Qaiwain - Stable outlook with limited risk

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UAE-based National Bank of Umm Al-Qaiwain - Stable outlook with limited risk

Global Arab Network - - Mohammed Almasri

Wednesday, 27 January 2010 14:48

UAE, (Dubai) Fitch Ratings has today affirmed National Bank of Umm Al-Qaiwain's (NBQ) ratings at Long-term Issuer Default (IDR) 'BBB+', Short-term IDR 'F2', Individual 'C/D' and Support '2'. The Support Rating Floor is affirmed at 'BBB+'. The Outlook for the Long-term IDR is Stable.

NBQ's IDRs are driven by the high probability of support from the UAE authorities, in case of need. As the Long-term IDR is currently at the Support Rating Floor, downside risk is limited. Downside pressure on the Individual rating could arise from significant deterioration in asset quality resulting in lower profitability and capital ratios.

NBQ's operating profits increased by a strong 38% yoy in 9M09 following exceptionally strong net interest income, mainly driven by dramatic loan growth in prior years. However, revenue growth is likely to slow in 2010 as the UAE (particularly Dubai) economy weakens, leading to lower business volumes. Additionally, higher loan impairment charges are expected to put pressure on profitability in the coming quarters. Cost efficiency, however, remains satisfactory to date.

While the biggest risk is asset quality, impaired loans still stood at a satisfactory 1.6% of end-9M09 gross loans. Additionally, NBQ booked an impairment relating to letters of credit of Awal Bank, owned by the troubled Saudi trading group Saad. Moreover, excessively rapid loan growth in the last three years, particularly in Dubai, where the economy has been facing difficulties, could result in further asset quality deterioration as loans season and the cycle changes. Market risks mainly arise from the bank's investment portfolio.

Funding is mainly from customer deposits. NBQ also had large syndicated loans, part of which were prepaid in 2009 and the bank plans to prepay around USD205m of the remaining USD275m (the equivalent of 11% of the funding base at end-9M09) in Q110. Liquidity has improved as the loan book shrank and Fitch also gains comfort from the substantial liquidity support provided by the UAE authorities since Q408 to the banking system. The Fitch-eligible capital ratio stood at a satisfactory 21.7% at end-9M09, providing a comfortable buffer for further asset quality deterioration. Additionally, the bank has exercised the option to convert medium-term deposits received from the UAE Ministry of Finance to tier 2 capital.

NBQ was established in 1982 by the ruler of Umm Al-Qaiwain and remains 30%- owned by that emirate's government. The bank focuses on wholesale banking but is placing greater emphasis on retail banking activity. It held around 1% of UAE banking system assets at end-9M09. In August 2008, Global Investment House, a Kuwaiti investment company, announced that it had agreed in principle to acquire a 20% stake in NBQ. However, the acquisition did not proceed. There are currently legal proceedings between both companies with NBQ holding the USD250m transferred by Global as an advance payment for the acquisition.

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

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