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Global rating agency Fitch has affirmed Abu Dhabi Commercial Bank's (ADCB) long-term Issuer Default Rating (IDR) at 'A+' with stable outlook. The IDR reflects the extremely high probability of support available to the bank - 60 percent owned by Mubadala Investment Company - from the government.
"Fitch's assessment of potential state support, in case of need, factors in the sovereign's strong ability to support the banking system, underpinned by its solid net external asset position, still-strong fiscal metrics and recurring hydrocarbon revenue," the global rating agency said in a report.
"It also reflects the authorities' very strong, timely and predictable record of supporting its domestic banks and strategic ownership of a number of banks, including ADCB," the report said.
The ratings of the bank's unsecured debt (programmes and notes), including that issued by ADCB's special purpose vehicles (SPVs) ADCB Finance (Cayman) Limited and AHB Sukuk Company Ltd, are in line with the bank's Long- and Short-Term IDRs, reflecting Fitch's view that the likelihood of default of these obligations is the same as the likelihood of default of the bank.
ADCB's asset quality is weaker than peers, Fitch noted. Reported Stage 3 loans (excluding interest in suspense) accounted for 6.1 percent of gross loans (excluding loans to banks) at end-Q3 2021, down from 6.3 percent at end-2020, due primarily to large write-offs (equivalent to 1.5 percent of end-Q3 2021 loans).
The bank's impaired loans are materially higher than at end-2019 (4.7 percent) mostly due to large corporate defaults including NMC Healthcare in 2020. Its reported Stage 2 loans fell to 7.7 percent at end of Q3 2021, reflecting the more benign economic outlook.
"The recently announced restructuring agreement for NMC could also yield recoveries, but we believe this will take time," Fitch said.
"Nevertheless, we expect loan quality to remain broadly stable in 2022 given the improving economic outlook and only modest level of remaining deferred payments," it said.
(Writing by Seban Scaria; editing by Daniel Luiz)
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