Wednesday, August 7, 2013

RAM Ratings reaffirms Abu Dhabi Commercial Bank’s AAA/P1 ratings




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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