Moody's downgrades top Dubai banks
London, December 8, 2012
Moody's ratings agency has downgraded by one notch each the long-term debt and deposit ratings of Emirates NBD, Mashreqbank and Commercial Bank of Dubai, while the issuer and long-term debt ratings of a fourth lender Dubai Islamic Bank has been placed on review for downgrade.
At the same time, Moody's has affirmed the short-term debt ratings for all four banks.
Moody's Investors Service said the rating actions on the four Dubai banks were driven primarily by (i) elevated problem loan levels (NPLs) in the 15 to 17 per cent range and (ii) low loan-loss coverage levels which, despite significant improvements in the local Dubai operating environment, remain persistently weaker than regional and global peers with similar standalone credit assessments.
The specific rating changes for each affected bank are as follows:
*Emirates NBD (ENBD): Moody's has downgraded the bank's long-term ratings, standalone credit assessment and bank financial strength rating (BFSR) by one notch to Baa1/ba2/D from A3/ba1/D+, respectively.
ENBD's Prime-2 short-term ratings have been affirmed. Moody's has maintained the negative outlook on all ratings of the bank to reflect the effect of increases in government-related concentrations and non-commercial restructurings on asset quality, coverage and profitability.
*Mashreqbank: Moody's has downgraded Mashreq's long-term ratings and lowered the standalone credit assessment by one notch to Baa2/ba1 from Baa1/baa3, respectively.
Mashreq's D+ BFSR and Prime-2 short-term ratings have been affirmed. Moody's has changed the outlook on the long-term deposit rating and the standalone ratings to stable from negative to reflect some stabilising factors, including strong capitalisation and liquidity levels, said the ratings agency.
*Commercial Bank of Dubai (CBD): Moody's has downgraded CBD's long-term ratings and lowered the standalone credit assessment by one notch to Baa1/ba1 from A3/baa3, respectively.
CBD's D+ BFSR and Prime-2 short-term ratings have been affirmed. Moody's has changed the outlook on the long-term deposit rating to stable from negative to reflect some stabilising factors, including strong capitalisation and profitability. The outlook on the standalone ratings remains stable.
In case of Dubai Islamic Bank (DIB), Moody's said it has placed all ratings of the Islamic lender under review for possible downgrade, affecting the long-term ratings, standalone credit assessment and BFSR at Baa1/ba3/D-, respectively.
According to Moody's, the Prime-2 short-term rating has also been placed under review for downgrade. The review will focus on the upcoming audited financials, to assess the evolution of asset quality, loan-loss coverage and capital-generation metrics relative to interim trends and forward looking expectations.
Despite an improvement in the overall operating environment in Dubai, especially in the core sectors of trade, retail, tourism and transport, Moody's believes that Dubai-based banks continue to face persistent asset quality pressures, which emerged at the start of the crisis four years ago.
Problem loans levels remain elevated in the range of 15 to 17 per cent (as of year-end 2011 audited financial statements), which is well above the average of GCC banks at 6.1 per cent, said a statement from Moody's.
Moody's expects problem loan levels to remain elevated over the coming quarters, driven by (i) exposures to large, stressed, government-related issuers (GRIs), particularly non-commercial restructurings, and (ii) legacy corporate impairments, primarily real-estate-related, which are still emerging after what Moody's expects have been failed attempts to restructure speculative real-estate financings underwritten earlier in the crisis, the ratings agency added.-TradeArabia News Service