Limassol, June 18, 2020 -- Moody's Investors Service ("Moody's") has today affirmed the long-term
ratings of eight United Arab Emirates (UAE)-based banks:
Emirates NBD PJSC (ENBD), Abu Dhabi Commercial Bank (ADCB),
Dubai Islamic Bank PJSC (DIB), MashreqBank psc (Mashreq),
HSBC Bank Middle East Limited (HBME), Abu Dhabi Islamic Bank (ADIB),
The National Bank of Ras-Al-Khaimah (P.S.C.)
(RAK) and National Bank of Fujairah PJSC (NBF). Moody's has also
affirmed the Baseline Credit Assessments (BCA) and Adjusted BCAs of the
eight banks.
At the same time, Moody's has changed the outlook to negative from
stable on the long-term ratings of the eight banks. The
change of outlook to negative from stable reflects the potential material
weakening in their standalone credit profiles, amid a challenging
operating environment in the UAE due to the coronavirus outbreak,
low oil prices and pre-existing economic challenges.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL426101
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
-- AFFIRMATION OF RATINGS REFLECTS SOLID STANDALONE CREDIT
PROFILES, COMBINED WITH HIGH OR VERY HIGH LIKELIHOOD OF GOVERNMENT
SUPPORT IN CASE OF NEED AT SOME BANKS
Moody's affirmation of the long-term deposit ratings, despite
the potential negative effects of the challenging environment on the banks'
financial fundamentals , reflects the banks' still solid capitalisation,
funding and liquidity. UAE banks' strong capital provide
sizeable loss-absorption potential, with system-wide
tangible common equity to risk-weighted-assets ratio at
14.9% as of December 2019. Funding and liquidity
are also solid, with market funds accounting for just 18.9%
of tangible banking assets and liquid banking assets representing 33.5%
of tangible banking assets as of December 2019. Bank specific details
of the rationales underlying the affirmations are provided later in the
press release.
The $70 billion support scheme (17% of GDP) provided by
the UAE central bank will soften the blow to the economy and to the banks
caused by the coronavirus outbreak and help to mitigate part of the expected
loan quality deterioration. Although we still expect UAE banks'
asset quality to materially deteriorate, the support scheme (including
$13.6 billion in zero cost collateralised funding) will
mitigate the extent of the deterioration by keeping liquidity issues from
becoming solvency issues for some borrowers . The central bank's
relaxation of minimum regulatory buffers (including a $43 billion
liquidity injection through reduced cash reserve requirement and lower
liquidity buffer requirements) will support banks' liquidity and ease
potential funding challenges.
The affirmation also takes into account the 'very high' likelihood of
support from UAE authorities in case of need, in line with UAE's
strong record of supporting banks in time of stress.
-- NEGATIVE OUTLOOK REFLECTS POTENTIAL WEAKENING IN STANDALONE
CREDIT PROFILES
The change of outlook to negative from stable on the banks' long-term
ratings reflects the potential material weakening in their standalone
credit profiles, amid a challenging operating environment in the
UAE due to the coronavirus outbreak, low oil prices and pre-existing
economic challenges.
The coronavirus outbreak represents a significant shock to the UAE's
open economy and coincides with a significant drop in oil prices that
also weighs on growth. The policies enacted to contain the outbreak,
combined with the impact of the pandemic on global growth and trade,
will negatively affect the UAE's growth. We also expect low
oil prices to negatively affect spending trends in the oil-producing
Gulf Cooperation Council region, which also weighs on the country's
open economy. Brent oil prices, which fell to low of $19
a barrel in April 2020, averaged around $40 a barrel during
the first five months of 2020 compared to a $64 average for 2019.
Macroeconomic conditions were already challenging for the UAE banks prior
to the outbreak, as a confluence of structural and cyclical factors
weighed on the country's economy in 2019. Slower global trade,
a strong currency, geopolitical tensions, as well as the impact
of moderate oil prices on business and consumer confidence, together
weighed on the UAE's non-hydrocarbon economic growth.
At the same time, cuts in oil production have constrained hydrocarbon
economic growth.
We expect the overall real GDP of the UAE to contract by 5% in
2020, compared with an estimated growth of 1.7% in
2019. We expect non-hydrocarbon GDP to contract by 4.0%
in 2020, compared with growth of 0.8% in 2019.
At the same time, we expect the hydrocarbon economy to contract
by 7.2% in 2020 (compared with growth of 3.4%
in 2019) owing to cuts in oil production in line with the OPEC agreement.
Details of how these drivers affect the banks ratings are given in the
bank specific sections below.
-- BANK-BY-BANK SUMMARY OF ACTIONS
- Emirates NBD PJSC (ENBD)
Moody's affirmed ENBD's long-term deposit rating at A3 and its
BCA and Adjusted BCA at ba1. At the same time, the rating
agency has changed the outlook on the bank's long-term deposit
ratings to negative from stable.
The affirmation of the BCA at ba1 reflects the bank's solid capitalisation
(14.8% tangible common equity/risk weighted assets as of
March), high problem loans coverage at 121% as of March and
resilient profitability, together supported by strong ties with
the Dubai government and large Dubai-based corporates, combined
with a large retail franchise. The bank's stable funding and liquidity,
reflecting an established domestic franchise combined with strong capital
markets access, also supports its standalone profile. However,
the economic slowdown, combined with the bank's sector credit concentrations
and high related party credit concentration, together moderate these
strengths.
The negative outlook on the bank's long-term ratings reflects
the potential weakening of the bank's standalone credit profile as a result
of the current challenging operating environment.
- Abu Dhabi Commercial Bank (ADCB)
Moody's affirmed ADCB's long-term deposit rating at A1 and its
BCA and Adjusted BCA at baa3. At the same time, the rating
agency has changed the outlook on the bank's long-term deposit
ratings to negative from stable.
The affirmation of the BCA at baa3 reflects the bank's sound capitalisation
(11.9% tangible common equity/ risk weighted assets ratio
as of March 2020), combined with strong funding and liquidity.
The bank's liquid banking assets/tangible banking assets ratio was
30.3%. These strengths are moderated by the bank's
asset quality and lower profitability. Problem loans to gross loans
(Moody's ratio, excluding loans to banks) increased to 4.9%
as of March 2020 from 3.3% as of December 2019. When
including loans to banks, the bank's problem loans to gross
loans ratio was 4.7% as of March 2020 and 3.2%
as of December 2019. The bank's net income to tangible assets
(Moody's ratio, adjusted for the dividend on hybrid securities)
stood at 0.1% during Q1 2020 compared to 1.1%
during the full year 2019. The reported net income to tangible
assets ratio (excluding the adjustment for the dividend on hybrid securities)
was 0.2% during Q1 2020 compared to 1.2% during
the full year 2019.
The negative outlook on the bank's long-term ratings reflects
the potential weakening of the bank's standalone credit profile as a result
of the current challenging operating environment.
- Dubai Islamic Bank PJSC (DIB)
Moody's affirmed DIB's long-term issuer rating at A3 and its BCA
and Adjusted BCA at ba2. At the same time, the rating agency
has changed the outlook on the bank's long-term issuer ratings
to negative from stable.
The affirmation of the BCA at ba2 reflects the bank's strong retail
franchise which underpins its sound profitability with net income to tangible
assets of 1.4% as of March 2020, and stable asset
risk with nonperforming financings at 4.4%. The established
retail franchise also supports the bank's strong and granular funding
profile with modest reliance on market funding (10% as at March
2020). DIB's BCA also captures the bank's ample liquidity
buffers with liquid assets making 23% of tangible banking assets.
These strengths are moderated by DIB's high borrower and sector
concentrations, fast financing growth and the acquisition of Noor
Bank which has a weaker financial profile.
The negative outlook on the bank's long-term ratings reflects
the potential weakening of the bank's standalone credit profile as a result
of the current challenging operating environment.
- MashreqBank psc (Mashreq)
Moody's affirmed Mashreq's long-term deposit rating at Baa1,
and its BCA and Adjusted BCA at baa3. At the same time, the
rating agency has changed the outlook on the bank's long-term deposit
ratings to negative from stable.
The affirmation of the BCA at baa3 reflects the bank's established franchise
in the UAE and is supported by its strong capitalisation with tangible
common equity to risk weighted assets as of 15.2% as of
March 2020. Mashreq's ample liquidity buffers with liquid
assets making 30% of its total tangible banking assets moderates
its increase reliance on market funding which stood at 27% as at
March 2020. The BCA also captures the bank's solid albeit
pressured profitability with net income at 1.2% of tangible
banking assets as of March 2020, as well as large borrower and sector
concentration risks.
The negative outlook on the bank's long-term ratings reflects
the potential weakening of the bank's standalone credit profile as a result
of the current challenging operating environment.
- HSBC Bank Middle East Limited (HBME)
Moody's affirmed HBME's long-term deposit rating at A3, and
its BCA at baa2 and its Adjusted BCA at a3. At the same time,
the rating agency has changed the outlook on the bank's long-term
deposit ratings to negative from stable.
The affirmation of the BCA at baa2 reflects the bank's (1) strong
and diversified franchise supporting core profitability, (2) strong
core capital buffer (tangible common equity/risk-weighted assets
at 15.7% as of December 2019) as well as (3) robust funding
benefiting from a low-cost, granular and sticky deposit franchise
and strong liquidity with a liquid banking assets/tangible banking assets
ratio at 44% as of December 2019. These strengths are moderated
by the bank's relatively weak asset quality (problem loans/gross loans
at 5.8% as of December 2019), underpinned by high
levels of credit concentrations, which is putting pressure on bottom-line
profitability.
The affirmation of the Adjusted BCA at a3 reflects Moody's continued
view of a very high probability of support from the bank's parent,
HSBC Holdings plc (A2 long-term senior unsecured, negative)
in case of need, which translates into a two-notch affiliate
support uplift from HBME's baa2 BCA. This considers the strategic
importance of HBME as the main operating vehicle for the Middle East operations
of the HSBC group.
The negative outlook on the bank's long-term ratings reflects
both (1) the potential weakening of the bank's standalone credit profile
as a result of the current challenging operating environment, together
with, (2) the potential downgrade of HBME's parent ratings
as captured by their current negative outlook.
- Abu Dhabi Islamic Bank (ADIB)
Moody's affirmed ADIB's long-term issuer rating at A2, and
its BCA and Adjusted BCA at ba1. At the same time, the rating
agency has changed the outlook on the bank's long-term issuer ratings
to negative from stable.
The affirmation of the BCA at ba1 captures primarily the bank's (1) sound
core profitability, supported by a strong domestic Islamic retail
franchise however the bottom-line is challenged by higher provisioning
needs, with an annualised net income/tangible assets at 0.9%
as of March 2020 down from a reported 2.1% in 2019;
(2) strong funding, with net financings/customer deposits at 80%
as of March 2020, with a granular deposit base (current and savings
accounts at around 72% over the same period); (3) sound capitalisation
with the bank's tangible common equity/risk-weighted assets
at 12.7% as of March 2020; and (4) weakening asset
quality (problem loans/gross loans at 7.9% as of March 2020)
with high borrower concentrations.
The negative outlook on the bank's long-term ratings reflects
the potential further weakening of the bank's standalone credit profile
as a result of the current challenging operating environment.
- The National Bank of Ras Al-Khaimah (P.S.C.)
(RAK)
Moody's affirmed RAK's long-term deposit rating at Baa1,
and its BCA and Adjusted BCA at baa3. At the same time, the
rating agency has changed the outlook on the bank's long-term deposit
ratings to negative from stable.
The affirmation of the BCA at baa3 reflects the bank's strong capitalization,
evidenced by a tangible common equity/ risk weighted assets ratio of 14.7%
as at March 2020, combined with solid funding (current, savings
and call account represented 62% of total deposits as of end-2019)
and liquidity, with a 32.9% liquid banking assets/tangible
banking assets ratio. In addition, RAK's established
franchise in retail and business banking drives solid profitability,
with a 1.0% net income to tangible assets ratio during the
first quarter the year. The bank's exposure to the high-risk
retail and business banking segments, its rapid growth in wholesale
banking, as well as its limited (though gradually improving) business
diversification moderate these strengths.
The negative outlook on the bank's long-term ratings reflects
the potential weakening of the bank's standalone credit profile as a result
of the current challenging operating environment.
- National Bank of Fujairah PJSC (NBF)
Moody's affirmed NBF's long-term deposit rating at Baa1,
and its BCA and Adjusted BCA at ba1. At the same time, the
rating agency has changed the outlook on the bank's long-term deposit
ratings to negative from stable.
The affirmation of the BCA at ba1 reflects the bank's solid core
profitability through an established corporate and business banking franchise,
adequate capital buffers with a tangible common equity/risk-weighted
assets at 13.8% as of March 2020. NBF's also
has stable funding, with a low market funding ratio at around 10%
of tangible banking assets as of March 2020, and strong liquidity,
with around 28% of the balance sheet in the form of liquid assets
as of the same period. These strengths are moderated by the bank's
relatively weak asset quality (problem loans/gross loans at 6.7%
as of March 2020), which is putting pressure on bottom-line
profitability, with a reported net income/tangible assets at 0.7%
as of March 2020, and limited business diversification.
The negative outlook on the bank's long-term ratings reflects
the potential weakening of the bank's standalone credit profile as a result
of the current challenging operating environment.
RATING OUTLOOKS
The banks' long-term ratings are on negative outlook, reflecting
the potential material weakening in their standalone credit profiles,
amid a challenging operating environment in the UAE due to the coronavirus
outbreak, low oil prices and pre-existing economic challenges.
For HBME, this also reflects the potential downgrade of the bank's
parent ratings in line with their current negative outlook.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upwards pressure on the banks' long-term ratings is limited given
the negative outlooks. The emergence of resilience of the banks'
asset quality, profitability and capitalisation could lead to a
stabilisation of outlooks on the banks' ratings.
Downwards pressure on the banks' long-term ratings could materialise
owing to a material deterioration in the banks' asset quality,
profitability and/or capitalisation. For HBME, this could
materialise in the case of a downgrade of both the bank's BCA together
with its parent's ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The local market analyst for Emirates NBD PJSC, EIB Sukuk Company
Ltd., Emirates NBD Global Funding Limited, Abu Dhabi
Commercial Bank, ADCB Finance (Cayman) Limited, The National
Bank of Ras Al-Khaimah (P.S.C.), Rakfunding
Cayman LTD and AHB Sukuk Company Ltd. ratings is Mik Kabeya,
+971 (423) 795-90.
The local market analyst for DIB Tier 1 Sukuk (3) Ltd., DIB
Sukuk Limited, MashreqBank psc, Mashreqbank psc, Hong
Kong Branch, Mashreqbank psc, London Branch and Dubai Islamic
Bank PJSC ratings is Ashraf Madani, +971 (423) 795-42.
The local market analyst for HSBC Bank Middle East Limited, HSBC
Bank Middle East Limited (UAE Branch), Abu Dhabi Islamic Bank,
ADIB Capital Invest 2 Ltd., National Bank of Fujairah PJSC
ratings is Badis Shubailat, +971 (423) 795-05.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited
and unsolicited credit ratings. Additionally, the List of
Affected Credit Ratings includes additional disclosures that vary with
regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL426101
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Endorsement
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
Items color coded in purple in this Press Release relate to unsolicited
ratings for a rated entity which is non-participating.
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.
Nondas Nicolaides
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
