Global Arab Network | Negative outlook - Moody's downgrades Commercial Bank of Dubai

Translate this article to your language:

GANPublications

e-Publications

Add Site to Favorites

Add Page to Favorites

Make Homepage

Share This Page

RSS Feed

--------------------------------------------------------------------------------------------------------------------
| |

Negative outlook - Moody's downgrades Commercial Bank of Dubai

Global Arab Network - - George Haddad

Tuesday, 01 June 2010 17:52

Moody's Investors Service has today downgraded the local and foreign currency deposit ratings of Commercial Bank of Dubai PJSC (CBD) by one notch to A3/Prime-2 from A2/Prime-1. At the same time, Moody's has confirmed CBD's bank financial strength rating (BFSR) at D+, which maps to a baseline credit assessment (BCA) of Baa3. The long-term deposit ratings have a negative outlook, reflecting the moderate risk of further deterioration in the credit fundamentals of Dubai-based corporates that could impact the bank's BCA and deposit ratings. Today's rating action concludes the rating review initiated in December 2009.

Although CBD's standalone strength has somewhat weakened as a result of the ongoing credit issues surrounding the Dubai corporate sector in which the bank is active, Moody's says that the bank's BCA remains at the Baa3 level and within the D+ BFSR category. Moody's stress-tests of CBD's exposures to the troubled Dubai government-owned entities (Dubai World and Dubai Holdings) show that the bank appears resilient. However, Moody's says that a moderate risk of further deterioration in the credit fundamentals of Dubai-based corporates could impact the bank's BCA.

Moreover, CBD's recurring earnings capability and capitalisation levels remain strong, although liquidity and funding remain an area to monitor for all Dubai-based banks as risk aversion in global debt capital markets continues and competition for deposits in the UAE intensifies. The funding pressures in the UAE will prevent the Dubai-based banks from engaging in new lending for some time, thereby impacting their short- to medium-term growth prospects.

Moody's assesses banks' external support using the joint-default analysis framework. Although Moody's continues to believe that the UAE central bank and the federal government will be very supportive of CBD, the bank's slightly weakened standalone rating, coupled with the challenging market conditions, its relatively modest market share and the 20% government stake, are better reflected by a three-notch uplift from CBD's BCA due to external support considerations - instead of four notches as previously assigned. The sensitivity of CBD's ratings to support considerations has resulted in a one-notch downgrade in the bank's deposit ratings.

The current ratings are as follows:

- BFSR: D+

- Long-term deposit ratings: A3

- Short-term deposit ratings: Prime-2

The long-term deposit ratings carry a negative outlook.

The previous rating action on CBD was implemented on 15 December 2009, when Moody's placed all ratings on review for possible downgrade.

The principal methodologies used in rating this issuer are "Bank Financial Strength Ratings: Global Methodology", and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Dubai, UAE, Commercial Bank of Dubai reported total assets of AED37.76 billion (US$10.27 billion) as at 31 March 2010.

Global Arab Network

Add comment

The opinions of the authors in articles published are theirs alone and do not necessarily reflect the views of Global Arab Network
------------------------------------------------------------------------------
Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network