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

Published on 20 October 2014 RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of Abu Dhabi Commercial Bank PJSC (ADCB or the Bank) and the AAA(bg)/Stable rating of the senior notes issued under ADCB Finance (Cayman) Limited’s RM3.5 billion MTN Programme (2010/2030). ADCB Finance is the Bank’s funding conduit; the debt facility is backed by an irrevocable and unconditional guarantee provided by ADCB. ADCB, which is 60%-owned by the Government of Abu Dhabi (GoAD), is the fourth-largest bank in the UAE by assets, and commands a large share of the banking system’s deposits. Given its government ownership and systemic importance, we believe that the GoAD and UAE government will firmly support the Bank in times of need. The UAE authorities’ commitment to ADCB is well established, having injected AED10.6 billion of capital into the Bank during the global financial crisis. ADCB’s asset quality has improved since 2013, with its gross impaired-loan (GIL) ratio falling to 4.1% as at end-December 2013 (end-December 2012: 5.4%); most of the improvement stemmed from mortgages and equity financing. As at end-June 2014, the Bank’s GIL ratio had eased further to 3.4%. ADCB’s credit-cost ratio has also been reduced through the years, coming up to 0.6% (annualised) in 1H fiscal 2014 while its GIL coverage ratio stood at a sturdy 140% as at end-June 2014. The sustainability of the improvements in the Bank’s asset quality will largely depend on the performance of its Dubai World exposure (which accounts for about 5% of its gross loans) and real-estate portfolio. However, ADCB’s robust earnings and capitalisation provide a strong buffer against potential losses. As at end-June 2014, the Bank’s tier-1 capital ratio stood at 15.8%.     ADCB’s funding profile is characterised by a heavier reliance on wholesale funding, as evidenced by its loans-to-deposits ratio of 113% as at end-June 2014, as well as a high level of depositor-concentration risk. On the other hand, the Bank enjoys diversified wholesale funding sources (by markets and currencies) while its solid liquidity position moderates its depositor-concentration risk. ADCB’s Basel III liquidity coverage ratio was well above 100% as at end-December 2013. Notably, the Bank has managed to reduce its funding costs as it gains significant traction in the expansion of its low-cost current- and savings-account deposits, which made up 48% of its customer deposits as at end-June 2014 (end-December 2010: 22%). Lower funding costs and reduced impairment charges have strengthened ADCB’s profitability over the years. The Bank’s pre-tax profit jumped 29% y-o-y in fiscal 2013 and 19% in 1H fiscal 2014, when its annualised ROA came in at a high 2.3%. Media contact Lim Yu Cheng (603) 7628 1188 yucheng@ram.com.my