Global Arab Network | Fitch Affirms Abu Dhabi-Based First Gulf Bank at 'A+'/'F1' With Stable Outlook

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Fitch Affirms Abu Dhabi-Based First Gulf Bank at 'A+'/'F1' With Stable Outlook

Global Arab Network - - Mohammed Almasri

Friday, 19 February 2010 12:34

Fitch Ratings has today affirmed Abu Dhabi-based First Gulf Bank's (FGB) Long-term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook. Fitch has simultaneously affirmed FGB's Short-term IDR at 'F1', Individual Rating at 'C/D', Support Rating at '1', Support Rating Floor at 'A+' and senior unsecured debt at 'A+'.

FGB's IDRs and Support Rating reflect the extremely high probability of support from the UAE authorities; Fitch's view is based on FGB's importance to the UAE banking system and its majority ownership by the Abu Dhabi ruling family. The Individual Rating reflects its good profitability and local franchise. It also reflects FGB's rapid recent loan growth, fairly tight liquidity, substantial exposure to local real estate, loan and deposit concentrations and risks inherent in the UAE operating environment.

Despite a slowdown in UAE and across the wider region in 2009, FGB's profitability remains robust, with net income of AED3.3bn; up 10.5% on 2008 (most peers reported a decline). The increase in net income was despite a 212% increase in impairment charges. FGB has also avoided significant exposures to the problems at two Saudi corporates (Saad and Al Gosaibi) and to Dubai World. Impaired loans (on a reported basis using 180 days) were a low 1.6% of the total loan portfolio at end-2009, with reserve coverage of 174%. However, these figures deteriorate to a still acceptable 3.3% and 82% respectively after including all loans past due by more than 90 days. Fitch expects impairments to continue to rise for the UAE banking sector in 2010 as the impact of the various problems relating to Dubai government-related entities becomes clearer. The net margin increased to 3.6% during 2009 from 3.1% in 2008, while cost efficiency was exceptionally good, with a cost/income ratio of 17.6%.

FGB's funding remains concentrated and reliant on customer deposits, mainly corporate and government-related, although retail deposits are growing. By means of diversification the bank issued USD500m of medium-term debt in 2009. Liquidity has improved but remains fairly tight with a gross loans/customer deposits ratio of 108% at end-2009 and a declining portfolio of unencumbered liquid assets. FGB's regulatory capital ratios were adequate at end-2009 with tier 1 at 19.3% and total capital at 22.6%. Fitch-eligible capital ratio was lower at 16.7% at end-2009, principally as Fitch does not apply any equity credit to the AED3.6bn of mandatory convertible notes (the AED4bn of Tier 1 perpetual securities do enjoy 100% equity credit).

Established in 1979, FGB is the fourth-largest local bank in the UAE, holding around 8% of UAE banking system assets at end-2009. The Abu Dhabi ruling family owns around 66% of the bank's shares; the balance of shares is widely held. FGB offers a broad range of corporate and retail banking services in the UAE.

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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