Published on 03 Feb 2017.
RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of Abu Dhabi Islamic Bank (ADIB or the Bank). The ratings are underscored by our expectation of ready support from the Government of Abu Dhabi (GoAD) and the UAE Federal Government, given the Bank's ownership structure and 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.
ADIB had been established under the Emiri Decree as Abu Dhabi's first Islamic bank, and boasts a strong retail franchise. The Bank is majority-owned by members of the Abu Dhabi ruling family (50%) and the Abu Dhabi Investment Council (8%). During the global financial crisis, the GoAD and the UAE authorities had clearly demonstrated their support for the Bank in the form of capital injections; we believe that such support will be readily extended again if needed.
ADIB's asset quality remains relatively weaker than its peers'. The Bank's gross impaired-financing (GIF) ratio had edged up to 3.5% as at end-September 2016 (end-December 2015: 3.3%), on the back of some weakness in its SME and personal-financing portfolios amid the economic slowdown in the UAE. The Bank's GIF ratio would come up to a higher 4.4% as at the same date (end-December 2015: 3.9%) if financing that is more than 90 days past due but not impaired were to be added. While ADIB faces further asset-quality pressures on account of the knock-on effects of depressed oil prices, particularly from its contracting exposures, the Bank's satisfactory pre-provision profit and strong GIF coverage ratio of 101.3% (including AED400 million of credit-risk reserves) provide a sufficient buffer against any significant deterioration.
Meanwhile, ADIB's solid funding and liquidity profile is underpinned by its extensive retail network. Deposits from individuals and SMEs formed a collective 65% of the Bank’s deposit base as at end-September 2016, lending diversity and stability to its funding profile. At the same time, ADIB’s financing-to-deposits ratio came up to a comfortable 79.7%, thereby positioning it well to compete amid tighter liquidity conditions.
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