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

Published on 23 September 2015

RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of Abu Dhabi Commercial Bank PJCS (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 funding conduit of the Bank, and the debt facility is backed by an irrevocable and unconditional guarantee provided by the Bank.
ADCB is the UAE’s fourth-largest bank by assets and commands a large share of the banking system’s deposits. The Bank is 58%-owned by Abu Dhabi Investment Council, an investment arm of the Government of Abu Dhabi. Given its government ownership and systemic importance, we believe that government support will be forthcoming, if required. In addition, ADCB’s ratings incorporate its strong franchise, robust loss-absorption capacity, concentrated loan book and deposits base, moderate asset quality as well as reliance on wholesale funding.
While ADCB’s loan book remains concentrated (by borrower and sector), the degree of concentration has reduced, thanks to the Bank’s efforts to increase the granularity of its lending portfolio. ADCB’s gross impaired-loan (GIL) ratio improved to a moderate 3.1% as at end-December 2014 from 4.1% a year earlier, largely attributable to the real-estate segment. The Bank’s GIL ratio had eased further to 3.0% as at end-June 2015 amid an expanding loan base. ADCB’s credit-cost ratio had also been reduced to an annualised 0.4% in 1H fiscal 2015 (fiscal 2013: 1.0%) while its GIL coverage ratio stood at a sturdy 142% as at end-June 2015.
ADCB’s loans-to-deposits ratio remained high at 111% as at end-June 2015, signifying a heavier reliance on wholesale funding. On balance, the Bank’s wholesale-funding sources are well diversified (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 2014.
ADCB has gained good traction in the expansion of low-cost current- and savings-account deposits, which made up 49% of customer deposits as at end-June 2015 (end-December 2010: 22%). The accompanying lower funding costs, coupled with reduced impairment charges, have strengthened ADCB’s profitability over the years.
The Bank’s pre-tax profit jumped 16% y-o-y in fiscal 2014 and 17% in 1H fiscal 2015, when its annualised return on risk-weighted assets came in at a high 3.2%.
Looking ahead, low oil prices are expected to moderate the UAE’s economic growth and could lead to asset-quality pressure, especially in the real-estate sector, which made up a third of ADCB’s loan book as at end-June 2015. Nonetheless, the Bank’s robust pre-provision earnings and capitalisation provide a strong buffer against potential losses. The Bank’s Basel II tier-1 capital ratio stood at 16% as at end-June 2015.
Media contact
Lim Yu Cheng
(603) 7628 1188
yucheng@ram.com.my