Published on 05 August 2013
RAM Ratings has reaffirmed Abu
Dhabi Commercial Bank PJSC’s (“ADCB” or “the Bank”) AAA/Stable/P1 financial
institution ratings, and the AAA(bg)/Stable/- rating of the medium-term notes
(“MTN”) issued under ADCB Finance (Cayman) Limited’s RM3.5 billion MTN Programme.
The debt facility is backed by an irrevocable and unconditional guarantee
provided by ADCB.
ADCB is 58.1%-owned by the Abu
Dhabi government via the Abu Dhabi Investment Council, and is viewed to be
systemically important to the United Arab Emirates, as its third-largest bank
by assets. The ratings reflect the strong support from both the Abu Dhabi and
UAE governments (collectively, “the Governments”). The Governments’ commitment
to ADCB was evident in 2009, when AED10.6 billion of financial support was
extended to the Bank.
As with most UAE banks, ADCB’s
loan portfolio features a high degree of borrower concentration. The Bank is
largely exposed to the real-estate-related sector (45% of its loan book), which
leaves it vulnerable to swings in property prices. ADCB’s gross impaired-loan
(“GIL”) ratio had climbed up to 5.4% as at end-December 2012 (end-December
2011: 4.6%), chiefly due to the subdued operating environment. The ratio
excludes the Bank’s exposure to Dubai World (at around 5% of gross loans) which
was reclassified as performing in 2011. ADCB’s GIL ratio improved to 4.9% as at
end-June 2013, although we do not discount the possibility of further troubled
credits surfacing over the near term as recovery remains uneven in the UAE
real-estate market. On balance, however, ADCB’s relatively broad net interest
margin of around 3% underscores its strong pre-impairment earnings. This, along
with its robust capitalisation, provides a sufficient buffer to absorb credit
losses.
On the funding front, ADCB’s
loan-to-deposit ratio stayed high at 112% as at end-March 2013. Its heavier
reliance on wholesale borrowings exposes it to volatile market conditions and
refinancing risk, although this is not viewed as a major threat. These funding
sources provide better asset-liability maturity matching and the Bank has to
date been able to refinance its borrowings.
Media contact
Amy Lo
(603) 7628 1078
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