DUBAI — Credit Suisse has started coverage of six UAE banks, including Abu Dhabi-based banks Union National Bank and First Gulf Bank which were assigned an “outperform” rating.
The National Bank of Abu Dhabi and the Dubai Islamic Bank were assigned an “underperform” rating, while Abu Dhabi Commercial Bank and Emirates NBD, the country’s biggest bank by assets, were rated as “neutral.”
Credit Suisse said that while both Union National Bank and First Gulf Bank have “superior” asset quality, the former is preferred because it has the highest net interest margin in the sector, and it is also the least exposed to the real estate industry. It added that First Gulf Bank also has a “healthy funding position to aid balance sheet growth, and is the only bank estimated to generate cumulative five-year positive earnings.
“We believe this is owing to its low leverage, lowest non-perfoming loans ratio and highest provisioning of 233 per cent.” While the National Bank of Abu Dhabi’s asset quality is among the best in the sector, the bank was rated an “underperfom” because its balanced sheet is stretched with a gross loan-to-deposit ratio of 111.3 per cent in 2008. Credit Suisse said the bank’s overseas expansion could continue to put pressure on costs.
The Dubai Islamic Bank is the least preferred stock because it has the biggest exposure to the volatile property sector which comprises 37 per cent of its loan book, and has the worst asset quality with non-performing loans of 4.1 per cent in 2008, while provisioning coverage was low at 55.9 per cent.
“On our stress test, Dubai Islamic Bank looks most vulnerable on already high non-performing loan ratio, significant exposure to investment properties, substantial real estate loan exposure and potential writedown of its associate portfolio.”
Credit Suisse expects Dubai Islamic Bank’s non-performing loan ratio to increase to 7 per cent in 2010 before stabilising at 5.75 per cent in 2013.
On the other hand, Emirates NBD rans the risk of under-capitalisation and may need to raise Tier 1 or core capital of about Dh3.2 billion.
Credit Suisse said the Abu Dhabi Commercial Bank lacks clarity on the amount of sub-prime and “toxic” assets of its books. A target price of Dh4 was pegged for Union National Bank; Dh13.83 for First Gulf Bank; Dh1.98 for Abu Dhabi Commerical Bank; Dh3.32 for Emirates NBD; Dh9 for National Bank of Abu Dhabi, and Dh2.03 for Dubai Islamic Bank.