(The following statement was released by the rating agency)Fitch Ratings-London-03 June 2020:Fitch Ratings has affirmed United Arab Bank P.J.S.C.'s (UAB) Long-Term IssuerDefault Rating (IDR) at 'BBB+' with a Stable Outlook and downgraded theViability Rating (VR) to 'b' from 'b+'.Key Rating DriversIDRS, SUPPORT RATING, SUPPORT RATING FLOOR AND SENIOR DEBT

UAB's Long- and Short-Term IDRs, Support Rating (SR) and Support Rating Floor(SRF) reflect a high probability of support available to the bank from the UAEauthorities, if needed.

Fitch's view of support factors in the sovereign's strong ability to supportthe banking system, sustained by its sovereign wealth funds and ongoingrevenue mostly from hydrocarbon production, despite lower oil prices. Fitchalso expects a high willingness of the UAE authorities to support the bankingsector, which has been demonstrated by its long record of supporting domesticbanks, and is also suggested by close ties with and partial governmentownership of some banks.

UAB's SRF is two notches below the UAE domestic systemically important banks'SRF of 'A' due to Fitch's view that UAB is of moderate systemic importancebased on its market share of below 1% of total UAE banking system assets atend-2019.

We assign Short-Term IDRs according to the mapping correspondence described inour rating criteria. A 'BBB+' Long-Term IDR can correspond to a Short-Term IDRof either 'F2' or 'F1'. In the case of UAB, we opted for 'F2', the lower ofthe two Short-Term IDR options. This is because a significant proportion ofthe UAE banking sector funding is related to the government and a stressscenario for banks is likely to come at a time when the sovereign itself isexperiencing some form of stress. Fitch judges this "wrong-way" risk to behigh in the UAE, and this is reflected in the Short-Term IDR, which primarilyreflects issuers' liquidity and funding profiles.

VR

The downgrade of the VR reflects the deterioration in the bank's asset qualityand weaker performance. The VR also considers UAB's small franchise,undiversified business model, high problem loans in light of whichcapitalisation is only adequate. The rating also factors in the bank'sacceptable funding structure and sufficient liquidity.

The bank's franchise is small, with a market share of less than 1% of bankingsector assets and loans at end-2019. UAB is therefore a price taker in the UAEand has no discernible competitive advantages. The bank offers wholesale andretail banking services, although the bank is more focused on corporatebanking, which accounted for 66% of operating income in 2019. Corporatebanking is primarily with local medium-sized corporates and UAB has onlynegligible exposure to SMEs.

UAB's asset quality is among the weakest in the UAE and is vulnerable to theweaker operating environment. Stage 3 loans were high at 11.4% of gross loansat end-2019, even after a large portion of the SME book was written off in thelast four years. Stage 2 loans were also a high 15.6% (16.6% of gross loans atend-2018), and combined with stage 3 exposures represented a high 27% of grossloans. This reflects the bank's large exposure to medium size corporates,which will suffer further in 2020 in the economic downturn. Reserve coverageof impaired loans improved and was nearing 100% at end-2019 but provisioningremained weak relative to total (stage 3 + stage 2) problem loans. Loanconcentrations are also high, albeit in line with the average for small UAEbanks.

The bank was loss making in 2019 due to high provisions charges driven by moreconservative credit risk measures adopted by management rather than assetquality deterioration. The bank's small franchise and undiversified businessmodel constrain fee income generation, and efficiency is weak, with the 2019the cost/Income ratio at 58% compared with a banking sector average of around35%.

UAB's capital position improved in 2018 thanks to a rights issue, and the CET1ratio was 13.6% at end-2019. However, capital buffers are only adequateconsidering unreserved problem loans, high single-name concentrations and weakprofitability. The bank has not paid dividends since 2014.

UAB is primarily funded by customer deposits, which were a high 79% ofnon-equity funding at end-2019. Current accounts and savings accountscomprised only 24% of total deposits, driving the bank's high cost of funding.High reliance on corporate deposits results in significant concentrations,with the largest 20 depositors representing 49% of customer funding atend-2019, higher than at most other small UAE banks.

The bank's liquidity is sufficient, and the loans/customer deposits ratio(103% at end-2019) is in line with peers. Liquid assets (comprising cashbalances and a liquid bonds portfolio) comprised 20% of total assets andcovered 30% of customer deposits at end-2019.RATING SENSITIVITIESIDRS, SR, SRF AND SENIOR DEBT

UAB's IDRs, SR and SRF are sensitive to any change in Fitch's view of thecreditworthiness of the UAE authorities or of their propensity to support thebanking system or the bank.

Factors that could, individually or collectively, lead to positive ratingaction/upgrade:

Given our already existing view of the high creditworthiness of the UAE andexisting high propensity to support the banking system and the bank, positiverating action is unlikely.

Factors that could, individually or collectively, lead to negative ratingaction/downgrade:

Deterioration in our view of the creditworthiness of the UAE authorities ortheir propensity to support the banking system or the bank could lead to adowngrade of the bank's IDRs.

VR

Factors that could, individually or collectively, lead to negative ratingaction/downgrade:

Downside could arise from further deterioration in asset quality thatsignificantly erodes capital.

Factors that could, individually or collectively, lead to positive ratingaction/upgrade:

A fall in UAB's problem loan exposures would reduce downward pressure on theVR.Best/Worst Case Rating ScenarioInternational scale credit ratings of Financial Institutions issuers have abest-case rating upgrade scenario (defined as the 99th percentile of ratingtransitions, measured in a positive direction) of three notches over athree-year rating horizon; and a worst-case rating downgrade scenario (definedas the 99th percentile of rating transitions, measured in a negativedirection) of four notches over three years. The complete span of best- andworst-case scenario credit ratings for all rating categories ranges from 'AAA'to 'D'. Best- and worst-case scenario credit ratings are based on historicalperformance. For more information about the methodology used to determinesector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING Theprincipal sources of information used in the analysis are described in theApplicable Criteria.Public Ratings with Credit Linkage to other ratingsUAB's IDRs, SR and SRF reflect a high probability of support available to thebank from the UAE authorities if needed.ESG Considerations The highest level of ESG credit relevance, if present, is ascore of 3. This means ESG issues are credit-neutral or have only a minimalcredit impact on the entity(ies), either due to their nature or to the way inwhich they are being managed by the entity(ies). For more information onFitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

United Arab Bank P.J.S.C.; Long Term Issuer Default Rating; Affirmed; BBB+;RO:Sta; Short Term Issuer Default Rating; Affirmed; F2; Viability Rating; Downgrade; b; Support Rating; Affirmed; 2; Support Rating Floor; Affirmed; BBB+

Contacts:Primary Rating AnalystRedmond Ramsdale,Senior Director+44 20 3530 1836Fitch Ratings Ltd30 North Colonnade, Canary WharfLondon E14 5GN

Secondary Rating AnalystNicolas Charreyron,Senior Analyst+44 20 3530 2715

Committee ChairpersonJames Watson,Managing Director+7 495 956 6657

Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email:louisa.williams@thefitchgroup.com

Additional information is available on www.fitchratings.com

Applicable CriteriaBank Rating Criteria (pub. 28 Feb 2020) (including rating assumptionsensitivity) ( https://www.fitchratings.com/site/re/10110041 )

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