RAM Ratings reaffirms Abu Dhabi Islamic Bank's AAA/Stable/P1 ratings

Published on 22 February 2016

RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of Abu Dhabi Islamic Bank PJSC (ADIB or the Bank). The ratings incorporate our expectation of ready support from the Government of Abu Dhabi and the UAE Federal Government given the Bank’s ownership structure and an established track record of government support. Concurrently, we have also reaffirmed the respective preliminary AAA(s) and AA1(s) ratings of the Senior and Subordinated Sukuk to be issued under ADIB Sukuk Company II Ltd’s proposed Islamic MTN Programme (Proposed Sukuk). ADIB Sukuk Company II is a trust-owned entity that acts as the Bank’s funding conduit. The issue ratings reflect ADIB’s credit strength as it is the obligor of the Proposed Sukuk. 
Established under an Emiri Decree, ADIB is among the top 5 Islamic bank globally (by assets) and has commendable domestic retail franchise. The Bank is owned by members of the Abu Dhabi ruling family (50%) and the Abu Dhabi Investment Council (8%). During the global financial crisis, the UAE authorities had clearly demonstrated their support for the Bank through capital injections. We believe that such support will be readily extended again if needed.
Although the gap has been narrowing, ADIB’s asset quality is still relatively weaker than its large local peers’. The Bank’s credit-cost ratio has been hovering around 1% partly due to its large unsecured consumer portfolio, which made up 23% of its total financing as at end-September 2015. ADIB’s adjusted gross impaired-financing ratio would stand at 4.0% if its financing that is more than 90 days past due but not impaired were to be added. At the same time, the Bank’s adjusted GIF coverage ratio, which included AED400 million of credit-risk reserves, had strengthened further to 103%.
The UAE economy has shown signs of slowing amid the knock-on effects of feeble oil prices. This, coupled with potential seasoning effects following rapid growth earlier, will exert pressure on ADIB’s asset quality, especially its SME financing (3.4% of total). Nonetheless, the Bank’s riskier unsecured exposure also leads to lofty margin of above 4%. We opine that ADIB’s strong pre-provision earnings provide a healthy buffer against a potential rise in impairment charges.
ADIB’s relatively favourable funding profile is a key differentiator vis-à-vis other UAE banks. As at end-September 2015, its financing-to-deposits ratio stood at a comfortable 86%. The Bank derived 63% of its customer deposits from individuals and SMEs, which provide funding stability. Thanks to its good deposit franchise, ADIB enjoys a low funding cost of below 1%. With a Basel III liquidity coverage ratio that comfortably exceeds 100%, the Bank’s liquidity is also solid.

Media contact
Lim Yu Cheng, CFA
(603) 7628 1188
yucheng@ram.com.my