Tuesday, Dec 06, 2011


 
 
The following is a press release from Fitch Ratings:

- Link to Fitch Ratings' Report: Major UAE Banks: Key Issues and Trends

- http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=621400

- Fitch Ratings-London/Dubai-06 December 2011: Fitch Ratings believes that the weak global economy and slowdown in Abu Dhabi will represent new headwinds for the UAE banking system.

Whilst the fragile real estate sector and the ongoing problems in Dubai government-related entities and several UAE corporates continue to pose significant asset quality challenges for the sector, banks will face new headwinds.

The UAE operating environment is not immune from global issues and this threatens the recovery in the banking system. Fitch is particularly expecting several key economic sectors, such as trade, tourism and services to be negatively impacted.

Abu Dhabi has been cutting its spending on construction-related projects, owing to concerns about the significant oversupply in the real estate market, an increase in the Emirate's financial commitments, and the slowdown in the global economy. Key projects remain in the pipeline, but some contracts have been delayed or possibly cancelled, as the Abu Dhabi government has prioritised major infrastructure projects. Fitch views this as positive and to benefit the economy in the long-run. However, this sharper-than-anticipated slowdown in the construction sector in Abu Dhabi could have some implications for the banks' asset quality in the short-term.

The significant increase in the renegotiated private sector loans hides the true extent of the banks' asset quality problems. Whilst fundamental credit issues in the operating environment remain unresolved, some of these loans may re-emerge as non-performing loans. Ultimately, the success of the various restructuring and renegotiating plans accepted by the banks depends on recovery in both the UAE and globally.

Overall, UAE banks remain profitable to date, despite weaker asset quality and slow loan growth. Core earnings benefit from lower funding costs. However, Fitch anticipates core earnings will decline given low business volumes and the recent Central Bank of the UAE rules on retail banking. Nevertheless, Fitch recognises the ability of pre-impairment income to continue to absorb high credit costs.

Customer deposits decreased significantly in the past three months with the outflow of unstable deposits (hot money) and some large government related deposits. As a result, the system loans/deposits ratio climbed back to the 100% mark in September 2011. However, Fitch believes that liquidity pressures remain manageable at a time when loan growth is slow.

The key challenge for liquidity is the banks' ability to raise long-term funding. It is clearly more costly, especially for Dubai based banks, when global markets are less liquid. Combined with a relatively tight loans/deposits ratio, Fitch expects continuing funding constraints.

-

- Positively, high levels of capital and healthy core earnings provide banks with a solid cushion against a potential increase in non-performing loans. This underpins the banks' Viability Ratings.

- The full special report, entitled 'Major UAE Banks: Key Issues and Trends', is available on the agency's website at www.fitchratings.com or by clicking the link above. The review covers the nine leading UAE banks namely Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD, First Gulf Bank, HSBC Middle East Bank, Mashreqbank, National Bank of Abu Dhabi and Union National Bank.

Contact:

Karim Soueissi

- Associate Director

- +971 4408 1807

- DIFC, Gate Village

- PO Box 506527

- Dubai

Mahin Dissanayake

- Director

- +971 4408 1806

Philip Smith

- Senior Director

- +44 20 3530 1091

Media Relations: Michelle James, London, Tel: +44 0203 530 1574, Email: Michelle.James@fitchratings.com.

Additional information is available at www.fitchratings.com

Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 16 August 2011 is available at www.fitchratings.com.

Applicable Criteria and Related Research:

- Global Financial Institutions Rating Criteria

- http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

(END) Dow Jones Newswires

06-12-11 0927GMT