Moody's assigns first time ratings of A1/Prime-1/D+ to Union National Bank (UAE)

New York, May 10, 2005 -- Moody's Investors Service has assigned an A1 long-term and Prime-1 short-term foreign currency deposit ratings and a D+ bank financial strength rating (FSR) to Union National Bank PJSC (United Arab Emirates). The outlook for the ratings is stable.

The bank's foreign currency deposit ratings are set at the A1/Prime-1 country ceilings for foreign currency deposits in the UAE in recognition of UNB's ownership by, and close association with the government of Abu Dhabi, by far the wealthiest of the seven emirates that form the UAE. The bank is owned 40% by the Finance Department of the Abu Dhabi government, while another 10% of equity is held by the Abu Dhabi Investment Authority, which manages Abu Dhabi's substantial funds generated from its oil industry. At the same time, the Dubai government owns another 10%stake in UNB, while the remaining 40% stake is held by the general public. Although on a stand-alone basis UNB's foreign currency deposit ratings would be rated lower given its D+ FSR, these ratings are lifted to the A1/Prime-1 country ceiling based on Moody's belief that there is a very strong likelihood that the Abu Dhabi government would support UNB on a timely basis in the event of need.

The D+ FSR assigned to UNB reflects the bank's modest domestic franchise that is underpinned by UNB's close government ties and its adequate financial fundamentals. UNB is the third-largest bank in Abu Dhabi and the ninth-largest overall in the UAE (including foreign banks), enjoying market shares of 7.4% and 6.4% of total customer deposits and loans, respectively. Aspiring to grow its retail banking franchise, UNB is a predominantly corporate bank, with significant exposures to government-related business, reflecting its close government relationships, primarily with the Abu Dhabi government and, to a lesser extent, with the Dubai government. According to Moody's, the bank exhibits a satisfactory earning power and bottom-line profitability, reflecting its acceptable interest margins and high operational efficiency. Despite the strong expansion of UNB's loan portfolio, credit quality remains good with a declining ratio of non-performing loans.

Although the recent high level of credit expansion has led to some tightening of liquidity, the bank's current liquidity position is adequate. Though lower than peers, UNB exhibits adequate capitalisation.

Nevertheless, the bank's recent sharp business expansion has led to a significant increase in its leverage, suggesting that further capital may be needed in the future to support such high growth rates and at the same time maintain adequate capital levels to protect the bank against unanticipated losses should the need arise. Finally, Moody's notes that the bank's D+ FSR is constrained by significant credit and funding concentrations to government and government-related entities.

All ratings assigned to UNB carry stable outlooks. Going forward, UNB's deposit ratings will be influenced by any movements in the country ceiling ratings, assuming the bank remains majority owned and controlled by the Abu Dhabi government. However, should the Abu Dhabi government cease to be a majority and/or controlling shareholder of UNB, then the deposit ratings could be detached from the country ceiling. The bank's FSR could benefit from the further strengthening of its retail banking franchise and the diversification of its overall business activities, within an acceptable risk profile; (ii) a significant reduction in its funding and credit concentration; and (iii) any substantial and sustained improvement in the bank's financial fundamentals, including a higher earning power, sustainable operational efficiency and stronger asset quality. On the other hand, UNB's FSR could be lowered if: its earning power and profitability were to decline to levels significantly lower than that of peers; (ii) there should be a sharp increase in problem loans, resulting in elevated provisioning requirements; (iii) the bank's leverage position increases substantially due to high business growth; and (iv) there are any signs of significantly increasing funding and credit concentrations.

Union National Bank is headquartered in Abu Dhabi and had end-2004 total assets of AED24.1 billion (approximately US$6.6 billion).

-Ends-

Limassol
Mardig Haladjian
Senior Vice President
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
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Limassol
Constantinos Pittalis
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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