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Fitch Affirms Dubai Islamic Bank at 'A'; Outlook Stable

Fitch Ratings-London/Dubai-26 January 2012: Fitch Ratings has affirmed Dubai Islamic Bank 's ( DIB ) Long-term Issuer Default Rating (IDR) at 'A' and Viability Rating (VR) at 'bb'. The Outlook on the Long-term IDR is Stable. A full list of rating actions is at the end of this release.

DIB 's Long- and Short-term IDRs reflect Fitch's view that there would be an extremely high probability of support from the UAE authorities in case of need. This view is based on the bank's high systemic importance, the Dubai government's 30% ownership and the strong history of support in the UAE.

The bank's VR reflects its high exposure to real estate, weaker asset quality, high loan concentrations, and, in this context, its relatively tight capitalisation position. It also reflects its strong franchise, healthy profitability and comfortable liquidity.

DIB 's net income increased in 9M11 by 14% yoy, mainly due to the first time consolidation of Tamweel ('BBB-'/'F3'), a previously troubled home finance provider, in which DIB acquired a majority stake in late 2010. Despite DIB 's loan book contracting and non-performing loans (NPLs) rising, pre-impairment operating profit remained healthy in 9M11. However, Fitch expects profitability to remain vulnerable to high loan impairment charges in the short term, given the low loan loss reserve coverage.

The NPL ratio had risen at end-9M11 due to both a significant increase in NPLs (mainly commercial real estate) and a contraction in gross loans. Fitch believes asset quality could improve in 2012 but this will largely depend on the successful restructuring/rescheduling of several large exposures. Fitch believes a further material and sustained drop in real estate rents and prices could have an adverse effect on DIB 's asset quality and could assert negative pressure on the VR.

Funding is underpinned by the high level of retail deposits. Consequently DIB 's deposit base is less concentrated than local and regional peers. Despite being largely contractually short-term, these deposits tend to be stable. Liquidity is satisfactory with DIB 's Fitch-calculated loans/deposits ratio at 82% at end-9M11, one of the best in the UAE. In addition, the bank's portfolio of highly liquid assets (including cash balances) enables it to comfortably manage liquidity.

Founded in 1975, DIB is one of the world's oldest Islamic banks and the seventh-largest bank in the UAE. The bank's largest shareholder is the investment arm of the Dubai government - the Investment Corporation of Dubai.

The rating actions are as follows:
Long-term IDR affirmed at 'A', Outlook Stable
Short-term IDR affirmed at 'F1'
Viability Rating affirmed at 'bb'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A'

-Ends-

For more information, please contact:
Primary Analyst
Karim Soueissi
Associate Director
+971 4 4081807
Fitch Ratings Ltd,
DIFC, Gate Village,
GV07 Level 1, Office 2,
PO Box 506527,
Dubai

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

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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

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© Press Release 2012