Fitch Ratings has today affirmed Abu Dhabi-based Union National Bank's (UNB) Long-term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook. Fitch has simultaneously affirmed UNB's Short-term IDR at 'F1', Individual Rating at 'C',
Support Rating at '1', Support Rating Floor at 'A+' and senior unsecured debt at 'A+'.
UNB's IDRs and Support Rating reflect the extremely high probability of support from the UAE authorities, in case of need, based on Fitch's view on UNB's importance to the UAE banking system and its substantial Abu Dhabi government ownership. The Individual Rating reflects sound asset quality ratios, satisfactory capital adequacy and reasonable liquidity. It also reflects concentrations in loans and deposits, real estate exposures, margin erosion and risks inherent in the UAE operating environment.
Despite an economic slowdown in the UAE and across the region in 2009, UNB's core profitability proved surprisingly robust. The bank reported net interest income of AED1.65bn, marking an increase of 10% on 2008, despite a flat loan portfolio and a slight erosion in the net interest margin. However, core fees and commissions suffered from slower business volumes, while negative valuation adjustments on investments and higher impairment charges caused net income to fall 20% to a still reasonable AED1.16bn. The net margin was 2.7% during 2009, down from 2.8% in 2008, while cost efficiency remained satisfactory, with a cost/income ratio of 30.6%.
Asset quality ratios remained good at end-2009, with just 1.5% of the loan portfolio classified as impaired with reserve coverage of 102%. Including all loans past due by more than 90 days but not classified as impaired, the ratios would deteriorate slightly to 2% and 78% respectively. UNB has avoided significant exposures to the financial problems at two Saudi corporates (Saad and Al Gosaibi) and to Dubai World. Fitch expects impairments to continue to rise for the UAE banking sector in 2010 as the impact of the various financial problems relating to Dubai government-related entities becomes clearer.
UNB's funding remains concentrated and reliant on customer deposits, mainly from corporate customers and government/quasi-government sources. The bank has USD400m of medium term notes maturing in July 2010 and will be able to meet this obligation from existing resources as refinancing in the debt capital markets will likely remain challenging. Liquidity has improved slightly, with the gross loans/customer deposits ratio down to 100.6% at end-2009 and an increase in liquid assets during the year. UNB's regulatory capital ratios were satisfactory at end-2009 with tier 1 at 15.5% and total capital at 20.7%, after benefiting from tier 1 securities issued to the Abu Dhabi government (AED2bn) and the conversion of UAE authorities' deposits into tier 2 capital during the year. The Fitch-eligible capital ratio was also satisfactory at 15.5% at end-2009.
Established in 1982, UNB is 50% owned by the Abu Dhabi Investment Council (wholly-owned by the government of Abu Dhabi) and 10% by the Investment Corporation of Dubai (wholly-owned by the government of Dubai). UNB is predominantly a corporate bank with a growing retail division and owns a small commercial bank in Egypt. There are also brokerage and Islamic banking subsidiaries.
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