Fitch Ratings-London/Dubai-10 May 2012:

Fitch Ratings has affirmed Abu Dhabi Commercial Bank's (ADCB) 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.

ADCB's IDRs, Support Rating and Support Rating Floor reflect Fitch's belief that there is an extremely high probability of support from the UAE authorities in case of need, given the bank's high systemic importance and government ownership, as well as the strong history of support in the UAE. In addition, Fitch believes that support would be forthcoming from the Abu Dhabi government ('AA'/Stable/'F1+), which has injected hybrid capital into the leading Abu Dhabi banks. The Abu Dhabi Investment Council (ADIC), an investment arm of the Abu Dhabi government, holds a 58.08% stake in the bank. A change in Fitch's view of the willingness or ability of the UAE authorities to provide sovereign support for ADCB could change the bank's IDRs.

The VR reflects ADCB's strong franchise, good earnings capabilities and improved liquidity and capital position. It also reflects its high real estate lending exposure, which could weaken asset quality in the short term and higher lending concentration compared to other rated UAE banks.

Fitch believes that further loan book diversification, demonstrated recovery on rescheduled loans and an improvement in the operating environment could lead to an upgrade of the VR. Further deterioration in asset quality affecting the bank's capitalisation and profitability could lead to a downgrade of the VR.

ADCB's pre-impairment operating profit has steadily increased by 13% p.a. for the past three years. Lower loan impairment charges and a large one-off gain from the sale of its Malaysian associate additionally boosted ADCB's net income in 2011. Fitch expects profitability to remain robust but to grow at a slower pace in 2012 due to strong competition, low loan growth and an increase in funding costs.

The non-performing loans (NPLs) ratio decreased to an acceptable 4.6% at end-2011 from a high 11.1% at end-2010 mainly due to the reclassification of its exposure to Dubai World as performing. However, similar to most banks in the UAE, there was a significant increase in renegotiated loans in 2011, some of which could become problematic in the future. The bank has also aggressively written off AED2.5bn (2% of gross loans) during 2011. Fitch expects the Abu Dhabi slowdown and the troubled real estate sector to continue to add pressure on asset quality in the short term.

Liquidity has improved significantly over the past three years with the loans/deposits ratio decreasing to 113% in Q112 from 145% at end-2009, although this remains high compared to peers. More positively, the bank's highly liquid assets provide an adequate buffer against deposit outflows. ADCB is primarily funded by customer deposits and has diverse wholesale funding sources. The bank continues to improve its funding base by increasing customer deposits, which Fitch views as essential to reduce concentration and achieve healthy loan growth in the future.

ADCB's capital position strengthened after the conversion of its mandatory convertible bonds and the sale of its Malaysian associate. The Fitch core capital ratio increased to 13% at end-2011 from 8% at end-2010. In Fitch's opinion, the bank's adequate capital buffer and sustainable pre-impairment operating profit mitigate the high loan book concentration risk.

Established in 1985, ADCB is the third-largest bank in the UAE in terms of assets. The bank has a strong brand and a leading retail and corporate franchise.

The rating actions are as follows:
ADCB
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+'
ADCB Islamic Finance (Cayman) Limited
Senior unsecured trust certificates affirmed at 'A+'

-Endfs-

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

Secondary Analyst
Mahin Dissanayake
Director
+971 4 4081806

Committee Chairperson
Gordon Scott
Managing Director
+44 20 3530 1075

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, 'Rating Sukuk', dated 16 August 2011 and 'Evaluating Corporate Governance', dated 13 December 2011 are available at www.fitchratings.com.

Press Release 2012