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Rating Action:

Moody's confirms the issuer ratings of Dubai Islamic Bank and Tamweel

15 May 2013

NOTE: On May 29, 2013, the press release was revised as follows: In the first sentence of the third paragraph, added the phrase “affirmed its” before “bank financial strength rating.” In the list of affected ratings, corrected “confirmed” to “affirmed” for the standalone bank financial strength rating of Tamweel PJSC. Revised release follows.

Limassol, May 15, 2013 -- Moody's Investors Service has today confirmed Dubai Islamic Bank's ('DIB') long-term issuer rating of Baa1 and bank financial strength rating (BFSR) of D-, mapping to a standalone credit assessment of ba3. The long-term rating of DIB's sukuk programme, issued through DIB Sukuk Limited, was also confirmed at (P) Baa1. All long-term ratings now carry a stable outlook. The short-term rating was also confirmed at Prime-2.

The confirmation of DIB's ratings reflects the recent capital injection and our expectation that asset quality pressure will ease which, in turn, should support profitability.

Moody's also confirmed Tamweel PJSC's (Tamweel) Baa3 long-term issuer rating and affirmed its bank financial strength rating (BFSR) of E+, mapping to a standalone credit assessment of b1. The long-term ratings of two sukuk programmes, issued through Tamweel Sukuk Limited and Tamweel Funding III Ltd., were also confirmed. The short-term rating was also confirmed at Prime-3. Tamweel's long-term ratings now carry a positive outlook.

The confirmation of Tamweel's ratings follows the confirmation of the parent's rating (DIB is a majority shareholder of Tamweel). The positive outlook assigned to Tamweel's ratings reflects our expectation that DIB will further increase its stake in Tamweel to 100% and fully integrate the subsidiary by the end of the year, which would lead to an equalisation of Tamweel's ratings with those of DIB.

Today's rating action concludes the review for downgrade initiated for Dubai Islamic Bank on 6 December 2012 and for Tamweel PJSC on 19 December 2012.

A full list of affected ratings is provided at the end of this press release.

- DUBAI ISLAMIC BANK

--RATINGS RATIONALE

The first key driver for today's confirmation is substantial improvement in DIB's capitalisation metrics driven by a hybrid Tier 1 sukuk issuance on the 13th March 2013 resulting in a 16.5% Tier 1 ratio under Basel II as of end March 2013 (increased from 13.9% as of year-end 2012).

The second key driver of today's rating action is our expectation that the non-performing financings (NPF) ratio will continue to decline this year, following a peak of 15.6% at year--end 2011. Despite increases observed in the interim Q3 2012 financials, year-end 2012 numbers showed a modest improvement to 14.6% (all figures incorporate Moody's adjustments). While asset quality and coverage levels still remain weak when compared to global peers, we expect the NPF ratio to continue to improve during 2013 through a combination of write-offs, financing growth and reclassification following a sustained performance of restructured exposures.

Reduced asset quality pressure should improve profitability and strengthen the institution's capacity to build capital buffers against future credit losses. Pre-Provision Income to Risk Weighted Assets ratio stood at 2.9% as of year-end 2012 up from 2.7% as of year-end 2011. DIB's growing and low-cost retail deposit base (44% are at zero cost) should also influence positively its profitability metrics going forward, easing the concerns we had when the review for a possible downgrade was initiated.

--SUPPORT ASSUMPTIONS

DIB's long-term ratings of Baa1 reflect the bank's ba3 standalone credit assessment and our view of the very high probability of systemic support in the event of a stress situation. This assumption, which generates five notches of rating uplift, is based on: (i) UAE's Aa2 rating; (ii) DIB's systemic importance in the UAE; (iii) past evidence of systemic support that has been provided to banks in case of need; and (iv) DIB's 30% ownership by the Government of Dubai and 4% by the UAE Federal Pension Fund.

WHAT COULD MOVE THE RATINGS UP/DOWN

DIB's ratings could be upgraded as a result of a combination of (i) sustained asset quality improvements (ii) improved loan-loss coverage levels and (iii) a further strengthening of its capital position.

DIB's ratings could be downgraded as a result of (i) a material weakening of asset quality (ii) a reduction in the size and profitability of the retail franchise and (iii) a weaker liquidity position.

-TAMWEEL PJSC

--RATINGS RATIONALE

Since emerging from federal government support with DIB becoming its new majority shareholder in October 2010, Tamweel has been fully consolidated into DIB's financials since year-end 2010 with operational integration expected to be fully concluded by year-end 2013. As such the rating was placed on review in line with the parent and has now been confirmed, in line with our decision to confirm DIB's rating. Tamweel's standalone credit assessment remains at b1, to reflect the institution's relatively high cost of funding and weak asset quality.

-- RATIONALE FOR POSITIVE OUTLOOK

Having recently increased its stake in Tamweel to 86.5% on the 8th of May 2013, we expect DIB to acquire 100% by the end of the year and retire Tamweel's 'expensive' liabilities as part of this process. At such point, Tamweel's issuer ratings will equalise with those of its higher rated parent.

--SUPPORT ASSUMPTIONS

Tamweel's long-term ratings of Baa3 reflect the bank's b1 standalone credit assessment and our view of the very high probability of parental support from DIB. This assumption, which generates four notches of rating uplift, is based on: (i) DIB's 86.5% majority ownership (ii) extensive operational integration and strategic fit of its home financing business (iii) the past experience of federal support that if necessary, would likely be provided through DIB rather than directly.

WHAT COULD MOVE THE RATINGS UP/DOWN

Tamweel's issuer rating benefits from parental support from DIB and as such is expected to equalise to that of the parent once DIB acquires 100% shareholding of Tamweel. However downwards pressure on Tamweel's ratings could develop following a weakening of DIB's capacity to provide support, although this is unlikely in the near term given today's confirmation of DIB's ratings.

LIST OF AFFECTED RATINGS

DUBAI ISLAMIC BANK PJSC

.... Issuer Ratings, Confirmed, currently Baa1, P-2

.... Bank Financial Strength Rating, Confirmed, currently D- (equivalent to a standalone credit assessment of ba3)

DIB Sukuk Limited

....Senior Unsecured Medium-Term Note Program, Confirmed, currently (P)Baa1

....Senior Unsecured Regular Bond/Debenture, Confirmed, currently Baa1

Tamweel PJSC

.... Issuer Ratings, Confirmed with positive outlook, currently Baa3, and P-3

.....Standalone bank financial strength rating, affirmed with positive outlook, currently E+ (equivalent to a standalone credit assessment of b1)

Tamweel Funding III Ltd

....Backed Senior Unsecured Regular Bond/Debenture of Baa1, Confirmed

....Backed Senior Unsecured Medium-Term Note Program of (P) Baa1, Confirmed

....Senior Unsecured Medium-Term Note Program of (P) Baa3, Confirmed with positive outlook

Tamweel Sukuk Limited

....Backed Senior Unsecured Regular Bond/Debenture of Baa3, Confirmed with positive outlook

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Moody's Consolidated Global Bank Rating Methodology, published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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.

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 analyst and the Moody's legal entity that has issued the ratings.

The local market analyst for Dubai Islamic Bank, Tamweel PJSC, Tamweel Funding III Ltd. and Tamweel Sukuk Limited is Khalid Howladar +971.4.237.9542

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
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms the issuer ratings of Dubai Islamic Bank and Tamweel
No Related Data.
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