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Fitch Downgrades 5 UAE Banks

DUBAI — Fitch Ratings on Wednesday downgraded individual ratings of a number of GCC banks,

including five in the UAE, after a review of 48 banks and non-bank financial institutions across the six countries.

The ratings agency said most GCC banks’ Issuer Default Ratings (IDRs) remained driven by the probability of support from the respective sovereign authorities. In a statement, Fitch said the standalone financial strength of many GCC financial institutions, reflected in the Individual rating, had changed as the impact of the global economic crisis spreads into the region.

“The exposure of GCC banks to the global credit crunch has been reflected in the downgrades of certain GCC financial institution Individual ratings,” it said.

In the UAE out of the total 13 reviewed, ratings of five banks were downgraded. These include Abu Dhabi Islamic Bank, Bank of Sharjah, Dubai Bank, Emirates Bank International and First Gulf Bank.

Eight UAE banks whose existing ratings were affirmed include Commercial Bank of Dubai, HSBC Middle East, Mashreqbank, National Bank of Abu Dhabi, National bank of RAK, National Bank of UAQ, Tamweel and Union National Bank.

The downgrades come as Fitch released a new report which assesses the growing impact of the global credit crisis on GCC financial institutions.

“Fitch’s outlook for GCC banks has become less favourable as it has become evident that the region’s banks and financial institutions will not be able to fully insulate themselves from the global credit crisis,” said Robert Thursfield, a Dubai-based Director in Fitch’s Financial Institutions group. “GCC banks are now feeling the effects of the crisis which is likely to cause deterioration in banking sector profitability and capitalisation going forward.”

According to Fitch, the outlook has moderated as other factors have also begun to negatively impact the GCC operating environment.

“In recent years, rapid credit growth, increased loan deposit ratios within the banking systems and asset price bubbles, to varying degrees across the region (particularly in the property sector), have made banks generally more sensitive to a global, as well as a domestic, downturn.”

The ratings agency noted that although performance and financial standing remained adequate for most banks in the third quarter of 2008, problems have emerged and increased in the last quarter.

“The credit crisis has resulted in weakened liquidity in GCC banking systems and is expected to contribute to lower regional economic growth. Sharp falls in oil prices will likely result in a decline in GCC government spending on infrastructure projects, which may be postponed or cancelled, leading to lower growth rates in the GCC economies.”

The average Individual rating for GCC banks remains ‘C’, denoting an adequate bank. However, there are significantly fewer banks rated ‘B’ (defined as a strong bank with no major concerns) and significantly more rated below ‘C’.

Abu Dhabi Islamic Bank:

Long-term IDR: affirmed at ‘A+’; Outlook Stable

Senior unsecured debt: affirmed at ‘A+’

Subordinated debt: affirmed at ‘A’

Short-term IDR: affirmed at ‘F1’

Individual rating: downgraded to ‘C/D’ from ‘C’

Bank of Sharjah:

Long-term IDR: affirmed at ‘A-’(A minus); Outlook Stable

Short-term IDR: affirmed at ‘F2’

Individual rating: downgraded to ‘C/D’ from ‘C’

Dubai Bank:

Long-term IDR: downgraded to ‘A-’(A minus) from ‘A’; Outlook Stable

Senior unsecured debt: downgraded to ‘A-’(A minus) from ‘A’

issacjohn@khaleejtimes.com

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