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Rating Action:

Moody's affirms Union National Bank's deposit ratings; outlook changed to stable

17 Dec 2013

London, 17 December 2013 -- Moody's Investors Service has today affirmed Union National Bank PJSC's (UNB) A1 long-term and Prime-1 short-term deposit ratings, as well as the D+ standalone bank financial strength rating (BFSR), equivalent to a baa3 standalone baseline credit assessment (BCA). At the same time, Moody's has changed the outlook on the long-term deposit ratings to stable from negative.

Moody's affirmation reflects UNB's solid profitability metrics and capital buffers, which compare favourably with those of local and global peers. The change in outlook to stable reflects the improving asset-quality and reserve coverage levels, combined with the resumption of loan growth supportive to UNB's franchise.

A full list of ratings is included at the end of the press release.

RATINGS RATIONALE

RATIONALE FOR AFFIRMATION

--- SOLID PROFITABILTY AND CAPITAL

The affirmation of the ratings takes into account UNB's solid and improving core profitability metrics with net interest margin increasing to around 3.1% as of end-September 2013, from 2.4% as of year-end 2009, a level higher than the UAE average of 2.8% expected for 2013. Moody's expects that UNB will be able to sustain such high levels of profitability for the foreseeable future. Strong earnings are expected to support capitalisation and future asset growth. UNB's Tier 1 ratio improved to 18.5% as of end-September 2013 from 15.5% as of year-end 2009, and compares favourably to the UAE average of around 16%. It is materially above the median of 12.5% for global banks with baa3 BCAs.

RATIONALE FOR STABLE OUTLOOK

--- IMPROVING ASSET QUALITY AND RESUMPTION OF LOAN GROWTH

The change in outlook to stable reflects the improving asset-quality and coverage levels combined with the resumption of loan growth supportive to UNB's franchise. UNB's asset quality has improved, with the reported non-performing loan (NPL) ratio down to 4.6% as of September 2013 from 5.8% as of December 2012. These NPL metrics compare favourably with those of its UAE peers, but remain higher than the 2.9% median for globally rated banks with baa3 BCAs.

The improvement in NPL ratio is driven by (1) improvements in the operating environment and ongoing real-estate market recovery; and (2) loan growth of around 6%, which had a denominator effect. In conjunction with asset-quality improvement, UNB's coverage levels have also improved to 80% as of September 2013 from 64% as of year-end 2012. Although these coverage metrics are higher than those of its UAE peers, they compare unfavourably with similar rated global peers. Moody's expects both the NPL and coverage ratio to improve further as the bank continues to grow its loan book and as the operating environment remains benign over the medium term, generating only low problem loan levels.

UNB's franchise growth and market position has also strengthened recently. Moody's expects that the bank will grow modestly in line with its UAE peers and maintain its market share of around 5% in terms of net loans. The bank's loan book grew by 6% during the first nine months of 2013, broadly in line with its UAE peers, compared with marginal negative growth observed (deleveraging) in 2012.

SUPPORT ASSUMPTIONS

UNB's A1 deposit rating incorporates five notches of uplift from its baa3 standalone BCA. The uplift reflects Moody's assessment of a very high likelihood of systemic support in case of need. The rating agency bases its view on (1) UNB's 50% ownership by the Abu Dhabi government, through the Abu Dhabi Investment Council; and (2) the UAE authorities' (Aa2) strong track record of supporting banks in times of stress.

WHAT COULD CHANGE THE RATING UP/DOWN

Upward pressure on UNB's ratings could develop from a combination of the following (1) considerable expansion of its franchise; (2) a material reduction in borrowing and funding concentration; and (3) significant improvement in asset-quality metrics and coverage levels.

Downward pressure on UNB's rating could develop from (1) a weakening of its franchise; or (2) deterioration in the elements that determine the bank's standalone creditworthiness, i.e., asset quality, profitability or capitalisation.

RATINGS LIST

Moody's ratings on Union National Bank are:

- Long-term deposit (foreign and local-currency) rating of A1; stable outlook

- Short-term deposit (foreign and local-currency) rating of Prime-1

- BFSR of D+/baa3; stable outlook

- Senior unsecured MTN programme (foreign-currency) ratings of (P)A1;

- Senior unsecured (foreign-currency) ratings of A1;

PRINCIPAL METHODOLOGIES

The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

As of September 2013, UNB reported total assets of around AED 86 billion (equivalent to around US$23 billion).

The Local Market analyst for this rating is Nitish Bhojnagarwala, +9714-237-9563.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Irakli Pipia
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Union National Bank's deposit ratings; outlook changed to stable
No Related Data.
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