Global Arab Network | Fitch Affirms Abu Dhabi Commercial Bank's Support Rating at '1'

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Fitch Affirms Abu Dhabi Commercial Bank's Support Rating at '1'

Global Arab Network - - Gamal Ragay

Tuesday, 09 March 2010 17:22

Fitch Ratings has today affirmed Abu Dhabi Commercial Bank's (ADCB) Support Rating at '1'.
The rating reflects the extremely high probability of support, should it ever be required, from the UAE authorities and the Abu Dhabi government, reflecting ADCB's majority ownership by the government of Abu Dhabi through the Abu Dhabi Investment Council (ADIC), and that the bank has one of the largest domestic franchises.

ADCB's performance deteriorated dramatically in 2009, resulting in a reported annual loss of AED513m. Loan impairment charges increased as the bank was required to take a minimum 50% impairment charge against AED2.2bn of exposures to two Saudi trading groups, Saad and Algosaibi, and as the domestic operating environment remained challenging. Fitch expects ADCB's performance to remain under pressure in 2010 given anticipated additional credit costs and low expected growth in business volumes.

The bank's asset quality ratios are weakening and NPLs (loans overdue by 90 days) increased to 5.2% of gross loans at end-2009 and the coverage ratio was weak at 68%. Fitch believes that NPLs have yet to peak given the weak operating environment, particularly in Dubai. ADCB had a high loan/deposit ratio of 145% (according to Fitch's calculation) at end-2009, a function of a higher reliance than peers on funding from debt capital markets (end-2009: about 25% of total funding). Around AED12bn (c.24% of capital market funding) mature in 2010. However, ADCB is a net lender in the interbank market with a net placement of AED13.6bn at end-2009. Fitch also believes additional liquidity can be readily sourced from the bank's majority shareholder if needed.

ADCB's total regulatory capital ratio was 17.4% at end-2009. The bank benefited from substantial support from Abu Dhabi (via the subscription of AED4bn of Tier 1 capital notes in February 2009) and the UAE authorities (via AED6.6bn of customer deposits qualifying to Tier 2 capital in 2009) which significantly boosted capitalisation in 2009.

ADCB is a full service bank operating through a network of branches and ATMs across the UAE. Its main shareholder is the government of Abu Dhabi (a 64.8% stake, held via the ADIC). It is the third-largest bank in the UAE with market shares in total assets and total deposits in the banking system of 11.5% and 8.8%, respectively, at end-2009.

Global Arab Network

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