(The following statement was released by the rating agency)Fitch Ratings-London-28 May 2020:Fitch Ratings has affirmed National Bank of Ras Al-Khaimah P.J.S.C. (Rakbank)Long-Term Issuer Default Rating (IDR) at 'BBB+' with Stable Outlook. A fulllist of rating actions below.Key Rating DriversIDRS, SUPPORT RATING, SUPPORT RATING FLOOR AND DEBT

Rakbank's IDRs, Support Rating (SR) and Support Rating Floor (SRF) reflect ahigh probability of support available to the bank from the UAE authorities ifneeded.

Fitch's view of support factors in the sovereign's strong ability to supportthe banking system, sustained by sovereign wealth funds and recurring revenue,mostly from hydrocarbon production, despite lower oil prices. Fitch alsoexpects a high willingness of the UAE authorities to support the bankingsector, which has been demonstrated by their long track record of supportingdomestic banks, and is also suggested by their close ties with and partialownership of some banks.

Rakbank's SRF is two notches below the UAE Domestic Systemically ImportantBanks' (D-SIB) SRF of 'A', reflecting Fitch's view that Rakbank is of moderatesystemic important based on its approximate 2% market share of total assets inthe UAE banking sector at end-2019 and the bank's niche retail and SME focus.

Rakbank's Short-Term 'F2' IDR is the lower of two options mapping to a 'BBB+'Long-Term IDR as described in our rating criteria. This is because asignificant proportion of the UAE banking sector funding is related to thegovernment and a stress on Rakbank is likely to come at a time when thesovereign itself is experiencing some form of stress. Fitch judges this"wrong-way" risk as high in the UAE, and this is reflected in the choice ofShort-Term IDR, which primarily reflects Rakbank's liquidity and fundingprofiles.

SPV AND SENIOR DEBT

The ratings of the senior unsecured notes issued under the bank's medium-termnote (MTN) programme through SPV Rakfunding Cayman Ltd (a fully-ownedsubsidiary) are in line with the bank's IDRs because Fitch views thelikelihood of default on senior unsecured obligations issued by the SPV asbeing the same as that of the bank.

Viability Rating

The Viability Rating (VR) of Rakbank reflects its high risk appetite relativeto peers', weak asset quality, modest franchise, only satisfactoryprofitability on a risk-adjusted basis and only adequate capital ratios, giventhe bank's higher risk appetite and vulnerable asset quality. It also factorsin the bank's business- model diversification strategy, adequate funding andliquidity, and good management.

Rakbank has an above-average risk appetite given its higher-risk businessmodel focused on retail and SME lending. These two segments comprised 51% and22% of total loans, respectively, at end-1Q20. These segments are core to thebank's strategy and have proven to be more vulnerable in economic downturns.At the same time, the bank has been expanding its wholesale business, whichrepresented 27% of total loans at end-1Q20. We view this businessdiversification as positive for the bank's risk profile, but the developmentof a more balanced business model will take time, in our view.

Our assessment of Rakbank's asset quality incorporates expected deteriorationin the bank's core lending segments (personal loans and SMEs) as these aresensitive to a prolonged economic slowdown in the UAE. The bank's impairedloans ratio fell to 3.8% at end-2019 from 4.4% at end-2018 due to a lowerstock of stage 3 exposures and a growing loan book; however, the level ofwrite-offs remains higher than at UAE peers and increased in 2019, withoutwhich the ratio would have been higher.

Restructured but performing loans accounted for 4.7% of loans at end-2019, andStage 2 and Stage 3 loans were a combined 10.1% of total loans, higher thanthe UAE peer average but an improvement from 14.6% at end-2018.

Impaired loans generation was high in 2019 at 4.2% of gross loans. Loanimpairment charges are declining but remained high at 3.7% of average grossloans in 2019, significantly above the sector average; these increased to 5.3%in 1Q20, due to higher provisioning in anticipation of increased pressuresfrom COVID-19 disruptions, although this trend was observed with varyingdegrees across the industry.

Total coverage of impaired loans was healthy at 123% at end-2019. Reserves forimpaired loans increased significantly in 2018 owing to the adoption of IFRS9. Fitch views the new reserve levels as more adequate for the bank's riskprofile. Coverage of Stage 2 and Stage 3 loans combined was 48% at end-2019,but is still deemed adequate.

Rakbank's share of around 2% of UAE banking system assets and deposits atend-2019 limits the bank's pricing power. Albeit fairly small, Rakbank'sretail banking and SME finance franchise benefits from strong recognition.Rakbank's management has in-depth knowledge of the regional market and ishighly experienced in local and international banking.

Rakbank is largely funded by stable customer deposits, which accounted forabout 77% of total non-equity funding at end-1Q20. The deposit base is moregranular than peers' due to the bank's retail focus, providing a stable andfairly low-cost funding base. Rakbank diversifies its funding through seniorunsecured debt issuance, and has demonstrated good access to capital marketswhen required. The bank's liquidity profile is acceptable, with net liquidassets equivalent to 20% of customer deposits at end-2019. In response to thepandemic the Central Bank of the UAE relaxed liquidity requirements andreduced the eligible liquid assets ratio as well as cash reserve requirementsagainst current and savings accounts (CASA) deposits, providing an immediateboost to Rakbank's liquidity, as well as for the sector as a whole.

Rakbank's capital ratios have sharply declined in recent years, albeit fromhigh levels. These are now only adequate for the bank's risk profile andvulnerable asset quality. Lower capital ratios have resulted from stronggrowth, lower retained earnings and regulatory changes, in particular theimplementation of IFRS 9. Nevertheless, capital ratios remain above peers'. Inour base case we expect these to remain fairly stable in 2020 due to likelymuted growth, but we see a significant risk of higher provisioningrequirements and loan impairment eroding capital buffers in 2H20.

Earnings and profitability metrics are declining from historical levels due tothe bank's diversification strategy towards lower-risk assets. Fitch now viewsthese metrics as only satisfactory given the bank's still higher-risk businessmodel and high loan impairment charges compared with most peers'. TheFitch-calculated operating profit/ risk weighted assets (RWAs) ratio sharplydeclined in 2018 (in line with the sector average) from over 5% prior to 2016,and was 2.4% in 2019.

The bank's net interest margin (NIM; 5.6% in 1Q20) remains well above the peeraverage, but has come down significantly from the 2015 level of 9.3%, also dueto the bank's diversification strategy. Fitch expects a further reduction inmargins as Rakbank continues to expand its wholesale lending.RATING SENSITIVITIESIDRS, SR, SRF

Rakbank's IDRs, SR and SRF are sensitive to a change in Fitch's view of thecreditworthiness of the UAE authorities or 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 andhigh propensity to support the banking system and the bank, a positive ratingaction 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.

SPV AND SENIOR DEBT

The ratings of the senior unsecured notes issued under the bank's MTNprogramme through SPV Rakfunding Cayman Ltd are subject to the samesensitivities as the bank's IDRs.

VR

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

-An upgrade of the VR is unlikely given the vulnerability of the bank's assetquality and earnings in the weaker operating environment, particularly the SMEfinancing segment.

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

-Further deterioration in the bank's asset-quality metrics or capital ratioscould result in a downgrade of Rakbank's VR.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 ratingsRakbank's IDRs, SR and SRF reflect a high probability of support available tothe bank 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.

The National Bank of Ras Al-Khaimah (P.S.C.); Long Term Issuer Default Rating;Affirmed; BBB+; RO:Sta; Short Term Issuer Default Rating; Affirmed; F2; Viability Rating; Affirmed; bb; Support Rating; Affirmed; 2; Support Rating Floor; Affirmed; BBB+RAKFUNDING CAYMAN LTD----senior unsecured; Long Term Rating; Affirmed; BBB+----senior unsecured; Short Term Rating; Affirmed; F2

Contacts:Primary Rating AnalystMahin Dissanayake,Senior Director+44 20 3530 1618Fitch Ratings Ltd30 North Colonnade, Canary WharfLondon E14 5GN

Secondary Rating AnalystJamal El Mellali,Associate Director+44 20 3530 1969

Committee ChairpersonJames Watson,Managing Director+7 495 956 6657

Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email:louisa.williams@thefitchgroup.comAmmaarah Hafezi, London, Tel: +44 20 3530 1137, Email:ammaarah.hafezi@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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