RAM Ratings reaffirms AAA rating of Emirates NBD’s proposed debt facility, maintains negative outlook

RAM Ratings has reaffirmed the AAA long-term rating of Emirates NBD PJSC’s proposed RM3.8 billion Senior Unsecured Conventional or Islamic Medium-Term Notes.

Concurrently, the negative outlook on the long-term rating has been maintained.

The rating reflects the strong support expected from the Bank’s ultimate shareholder, the Government of Dubai, and also the United Arab Emirates government given that Emirates NBD is a systemically important bank in the UAE, commanding around 18% of the deposits in its banking system.

This support had been evident during the global financial crisis, when the Governments extended AED16.6 billion of financial support to the Bank.

The negative outlook reflects our concerns on the deterioration in the credit quality of the Bank’s loan portfolio that has yet to abate, although the pace of gross impaired loan (GIL) accretion has moderated.

The Bank’s GIL ratio had eased slightly to 13.9% as at end-June 2013 (end-December 2012: 14.3%), aided by a stronger gross loan growth of 6.5% for 1H FY Dec 2013 (1H FY Dec 2012: 3.2%). Excluding the loan book of BNP Paribas SA Egypt that the Bank acquired in June 2013, its loan expansion would have clocked in at 5.0%.

While the key sectors of the Dubai economy have experienced gradual expansion, we are still closely monitoring the economic climate in the UAE vis-à-vis the Bank’s credit portfolio.

Meanwhile, Emirates NBD’s loans-to-deposits ratio improved to 100.6% as at end-June 2013 (end-December 2012: 102.0%; end-December 2011: 105.1%).

Primarily crimped by hefty credit impairments, Emirates NBD’s profitability is weaker than its UAE banking peers’.

Its credit-cost ratio of 1.5% (annualised) for 1H FY Dec 2013 is deemed high, and is expected to remain elevated as it builds up its loan-loss reserves.

All said, however, the Bank’s tier-1 and overall risk-weighted capital-adequacy ratios of a respective 14.5% and 18.5% as at end-June 2013 are deemed strong and provide a sufficient buffer against impairment losses under RAM’s stress-test assumptions.


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