Dubai: Credit rating agency Moody’s yesterday confirmed the deposits ratings of five UAE banks National Bank of Abu Dhabi (NBAD), Abu Dhabi Commercial Bank (ADCB), Union National Bank PJSC (UNB), Al Hilal Bank (AHB) and Abu Dhabi Islamic Bank (ADIB).
These rating actions follows recent confirmation of the UAE Government rating. The current ratings of these banks are NBAD: Aa3, ADCB: A1, UNB: A1, Al Hilal Bank: A1 and ADIB: A2.
All five banks’ ratings have been placed on negative outlook. The action concludes Moody’s review for downgrade of five UAE banks’ ratings that was initiated in March this year.
In the beginning of this year, rating agencies such as Moody’s and Standard & Poor’s projected weakening operating environment to slow credit growth, profitability and asset quality of UAE banks. The first quarter financial results broadly confirm this trend.
The confirmation of ratings with negative outlook follows Moody’s confirmation of UAE government issuer rating at Aa2, with a negative outlook last week.
Moody’s expects the Abu Dhabi government’s sizeable fiscal buffers to help the UAE government to cope with the challenges from the ongoing economic slowdown and allow it time to adjust its fiscal policy to lower oil prices. As oil and gas accounted for almost half of the UAE’s fiscal revenue in 2015, Moody’s expects the UAE’s fiscal accounts to deteriorate to a deficit of 9.5 per cent of GDP in 2016.
Moody’s decision to confirm the ratings of five Abu Dhabi based banks is underpinned by the continued capacity and willingness of the government to provide support to the banks in times of stress as indicated by the confirmation of the Aa2 rating.
“The negative outlook mirrors the negative outlook on the sovereign rating and captures UAE’s fiscal pressures, which may weaken its capacity to provide support over time,” the rating agency said in a statement.
Moody’s also concluded the review for downgrade on the ratings of 11 Saudi banks initiated on March by downgrading the long-term deposit ratings of nine banks and confirming the ratings of two banks. All ratings carry a stable outlook.
The rating actions on the banks follow Moody’s downgrade of Saudi Arabia’s government issuer rating to A1 (stable) from Aa3. The sovereign action reflects the ongoing negative impact of lower oil prices on Saudi’s fiscal position and economic strength.
“The rating downgrades of nine Saudi banks reflect, to differing degrees, a combination of: the reduced fiscal capacity of the Saudi government to provide support to the banks in times of stress, if needed; and an assessment of each bank’s resilience to the weakening domestic operating environment, which Moody’s expects will dampen funding, asset quality and profitability in the coming quarters.
The nine banks are: SAMBA Financial Group (SAMBA) downgraded from A1 from Aa3, Banque Saudi Fransi (BSF) A1 from Aa3, Saudi British Bank (SABB), Arab National Bank (ANB), Riyad Bank (Riyad), Saudi Hollandi Bank (SHB), Saudi Investment Bank (SAIB), Bank AlBilad (BAB) and Bank Al-Jazira (BAJ).
Arab National Bank to A2 from A1, Riyad to A2 from A1, Saudi Hollandi Bank to A3/ Prime-2 from A1/ Prime-1 Saudi Investment Bank to A3/ Prime-2 from A2/ Prime-1. Bank AlBilad to A3/ Prime-2 from A2/ Prime-1. Bank Al-Jazira to Baa1 from A3,
Moody’s confirmed the deposit ratings of Al Rajhi Bank (ARB) and National Commercial Bank (NCB), reflecting the rating agency’s expectation of the resilience of the banks’ deposit ratings at their current levels to the aforementioned pressures.
