Standard & Poor's has concluded its review of Dubai-based banks, which has resulted in various negative rating actions.

We are lowering the ratings on Emirates Bank International PJSC, National Bank of Dubai, and Mashreqbank to 'A-/A-2' from 'A/A-1'.

We are lowering the long-term rating on Dubai Islamic Bank to 'BBB+' from 'A-' and affirming the 'A-2' short-term rating.

The negative outlooks on all these banks reflect the deteriorating operating environment in Dubai and the impact we expect it to have on the banks' financial profiles.

PARIS (Standard & Poor's) July 07, 2009--Standard & Poor's Ratings Services said today that it has lowered its long- and short-term counterparty credit ratings on Dubai-based Emirates Bank International PJSC (EBI), National Bank of Dubai (NBD), and Mashreqbank to 'A-/A-2' from 'A/A-1'. We also lowered our long-term counterparty rating on Dubai Islamic Bank (DIB) to 'BBB+' from 'A-' and affirmed our 'A-2' short-term rating on the bank. The outlooks on all these ratings are negative. At the same time, we removed all the ratings from CreditWatch with negative implications, where they were placed on March 17, 2009.

The rating actions mainly reflect the impact on these banks of the difficult macroeconomic and financing environment in the Emirate of Dubai (not rated). The risks to Dubai's economy have, in our view, increased as the real estate sector has entered a sharp correction period. We expect the impact on Dubai's overall economy to be significant, as construction and real estate account for almost 50% of Dubai's GDP. The economic slowdown, stock market decline, and dropping real estate prices are raising significant hurdles for these Dubai-based banks. Looking forward, we expect these factors to significantly slow business growth and lead to a deterioration in asset quality and profitability.

Standard & Poor's acknowledges that banks in the United Arab Emirates (not rated) have been receiving significant support, in the form of liquidity and capital, from the federal authorities under various programs. For instance, the authorities have recently announced their plan to offer guarantees for bonds to be issued by these banks. While these various measures represent important mitigating factors, we nevertheless expect the deterioration in banks' asset quality to be material.

We classify the UAE as "interventionist" toward its banking sector, meaning that we expect strong extraordinary support to systemically important banks in case of need. Therefore, the long-term rating on Mashreqbank is one notch above its stand-alone credit profile owing to its systemic importance. The long-term ratings on EBI, NBD, and DIB are two notches above their respective stand-alone credit profiles owing to their systemic importance and ownership structure dominated by the government of Dubai.

The negative outlooks reflect the deteriorating operating environment and the impact we expect it to have on the banks' financial profiles. Under our base case scenario, we expect the financial profiles of these banks to remain adequate for the current ratings. However, if the operating environment continues to worsen and the financial profiles of these banks, especially asset quality, financial performance, or capital ratios, are more affected than we expect, the ratings could come under further pressure. On the other hand, we could revise the outlooks to stable if operating environment pressure eases, the banks demonstrate a superior resilience to current market conditions, or improve their financial profiles substantially.

RELATED RESEARCH

  • "How Systemic Importance Plays A Significant Role In Bank Ratings," July 3, 2007.

RATINGS LIST

To From

Downgraded

A-/Negative/A-2 A/Watch Neg/A-1

Long-Term Rating BBB+/Negative A-/Watch Neg

Ratings Affirmed

Dubai Islamic Bank

Short-Term Rating A-2

NB: This list does not include all ratings affected.  

-Ends-

About Standard & Poor's in the Gulf Cooperation Council
Standard & Poor's is the leading provider of financial market intelligence to customers in the Gulf's credit risk management, wealth management, and data and information markets. Since entering the region in the early 1990's, Standard & Poor's has become the largest provider of credit ratings in the G.C.C, rating 114 issuers. In equity markets, Shariah-compliant versions of Standard & Poor's global and regional equity market indices - S&P 500, S&P Europe 350, S&P Japan 500 and S&P/IFCI GCC - have created new opportunities for Islamic investors to benchmark their international investments and for asset managers to create new investment products serving the Islamic community. Standard & Poor's Fund Services launched a qualitative fund management rating service for regional asset managers in 2007. For further details on Standard & Poor's regional capabilities please visit www.gcc.standardandpoors.com

Press Office Contacts:
London: +44 20 7176 3605
Dubai: +971 4709 6830
Paris: +33 1 44 20 6740
Frankfurt: +49 69 33999 225
Milan: +39 02 72 111 245
Madrid: +34 91 389 6944
Moscow: +7 495 783 4011
Stockholm: +46 8 440 5914

© Press Release 2009