Moody's affirms NBAD, FGB ratings

Following the landmark merger announcement of National Bank of Abu Dhabi and First Gulf Bank to create one of the largest banks in the Middle East and Africa with assets of Dh642 billion, Moody's Investors Service affirmed on Monday the deposit ratings of both banks.
The ratings agency also affirmed the two banks' baseline credit assessment (BCA) at a3 and baa2, respectively. In addition, the outlook on FGB's long-term ratings was changed to positive from stable.
"Today's rating action follows the official public announcement on July 3 2016 that the banks have entered into a merger agreement. The merger remains subject to regulatory and shareholder approval and is expected to complete by first quarter 2017. Upon completion, NBAD will remain and acquire all of FGB's liabilities and assets in exchange for new NBAD shares issued to FGB's shareholders," Moody's said in a statement.
NBAD's a3 BCA affirmation reflects Moody's view that this merger upon completion will deliver high quality retail diversification to the bank's wholesale-focused loan book and improve core profitability. It also indicates Moody's view that the merger would improve the capital base; reduce both loan and deposit concentrations; and create the largest bank in the GCC by asset, which should support further organic expansion of the business.
The ratings agency said the change of outlook to positive on FGB's long-term ratings was driven by its view that the merger would be beneficial for FGB's depositors and senior creditors as they will be transferred to NBAD, a fundamentally stronger entity. Upon completion of merger, when all liabilities are transferred to NBAD, it is expected that the ratings on FGB will be withdrawn.
FGB's baa2 BCA affirmation reflects Moody's view that the bank's operations and standalone profile are not expected to change significantly until the merger is completed. Moody's said its affirmation of NBAD's a3 BCA reflects its view that the proposed merger will enhance the bank's domestic franchise. The addition of FGB's larger domestic retail business will complement both NBAD's international business and its well-established domestic wholesale franchise. "As such, we expect that the combination will create the largest bank in the Gulf, which will support organic growth opportunities and moderate NBAD's very high borrower concentrations." The merger of the two banks, one of two significant consolidation efforts currently underway in Abu Dhabi, will result in a return on equity of 14.1 per cent and a market value, as of June 30, of $29.1 billion. Last week, the government ordered the merger of state investment funds Mubadala and International Petroleum Investment Company.
His Highness Shaikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, said the merger would create high-value opportunities for the people of the UAE and further core aims of Abu Dhabi's Economic Vision 2030, in keeping with the UAE's long term economic ambition.
According to the analysts, the merger involving an estimated one-time integration cost of Dh600 million would entail a cost-saving opportunity of around Dh500 million a year, with the cost benefit representing eight per cent of the combined asset base. - issacjohn@khaleejtimes.com