Global Arab Network | Asset Quality Deterioration - Fitch Downgrades Dubai Bank Individual Rating

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Asset Quality Deterioration - Fitch Downgrades Dubai Bank Individual Rating

Global Arab Network - - George Haddad

Tuesday, 25 May 2010 13:22

Fitch Ratings has today downgraded UAE-based Dubai Bank's (DB) Individual Rating to 'D' from 'C/D', while maintaining it on Rating Watch Negative (RWN). Simultaneously, DB's Long-term Issuer Default (IDR) of 'BBB-', Short-term IDR of 'F3', Support Rating '2' and Support Rating Floor of 'BBB-' have all been affirmed. The Outlook on the Long-term IDR is Negative.

The downgrade of the Individual Rating reflects DB's weakened financials, including low profit expectations for 2010 (loss of AED291m in 2009), rising loan charges as well as the likelihood of further asset quality deterioration, given high levels of restructured/renegotiated loans.

Fitch's concerns on asset quality deterioration are further heightened by DB's large single name loan concentrations, mainly to entities related to Dubai Holding, and the prospect that other Dubai government related entities may be facing their own financing pressures. Furthermore, high funding concentrations also weigh on DB's credit profile.

Given these factors, Fitch considers DB's capitalisation to be tight, with a Tier 1 ratio of 12.8% at end-2009 (2008: 12.1%), although its capital adequacy ratio was 19.4% (end-2008: 11.6%).

DB's Individual rating remains on RWN negative reflecting its exposure to entities which are part of Dubai Holding and the Dubai government.

The affirmation of DB's IDRs and Support Rating reflect the potential support that would flow primarily from the Dubai authorities. However, as a bank regulated by the UAE Central Bank, support could ultimately also be forthcoming from the UAE authorities. Fitch believes that, if ever required, there is a high probability DB will be supported.

The Negative Outlook on the Long-term IDR reflects Fitch's view of the impact of the global economic slowdown and the correction in Dubai real estate prices on the creditworthiness of the Dubai sovereign and related entities, the bank's main source of support.

Dubai Bank is an Islamic bank wholly-owned by Dubai Banking Group which in turn is 70% owned by Dubai Holding (ultimately the ruler of Dubai) and 30% owned by the property developer, Emaar (32% owned by the government of Dubai).

Global Arab Network

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