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

 

Published on 20 Nov 2017.

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 funding conduit for the Bank; the debt facility is backed by an irrevocable and unconditional guarantee provided by the latter. 

ADCB is the UAE’s third-largest bank by assets. The Bank is 62.5%-owned by the 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. 

The challenging operating landscape brought on by low oil prices has led to some weakening in asset quality. However, such deterioration has been manageable to date. ADCB’s gross impaired-loan (GIL) ratio of 2.9% as at end-September 2017, inclusive of lending to banks, was one of the lowest among the 5 largest UAE banks. The Bank’s reported credit-cost ratio remained elevated at an annualised 0.8% in 9M FY Dec 2017 and could stay at this level in the near term due to its prudent provisioning. Notably, the impaired loans in its consumer- and wholesale-banking books are sufficiently covered by provisions. As a whole, the Bank’s GIL coverage ratio, inclusive of impairment allowance on loans to banks, stood at a strong 118.7% as at end-September 2017.

ADCB has a high reliance on market-based funding, but its sources of funding are well diversified. Its ability to gain access to foreign funding at favourable rates allows it the flexibility to better manage its funding cost and margins, especially under tight liquidity conditions, as happened in 2016. The Bank’s loans-to-funds ratio, which includes debt issues and borrowings besides customer deposits, has been hovering around 80% since end-December 2015. Its liquidity position is solid; ADCB’s liquidity coverage ratio exceeded 100% as at end-September 2017.

RAM expects ADCB’s profitability to come under pressure from high credit costs in the near term, although the Bank’s good control over operating costs could cushion some of the impact. The Bank posted a pre-tax profit of AED3.2 billion, translating into a healthy, albeit lower, annualised RORWA of 2.2% in 9M FY Dec 2017 (fiscal 2016: 2.3%), along with a steady cost-to-income ratio of 32.6%. Meanwhile, its internal capital generation remains healthy. The Bank’s capitalisation is also solid, with respective tier-1 and total capital ratios of 15.3% and 18.5% as at end-September 2017.

 

Analytical contact    
Chan Yin Huei    
(603) 7628 1180
yinhuei@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my