Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed Commercial Bank of Dubai's (CBD) Financial Strength Rating (FSR) at 'BBB+'.
The Bank's Long-Term and Short-Term Foreign Currency Ratings are maintained at 'A-' and 'A2', respectively, with a 'Stable' Outlook. These ratings continue to be substantially underpinned by the demonstrated support of the federal government and the high likelihood of future support.
The Support Rating of '2' is maintained. In view of the Bank's weaker asset quality at end 2011, notwithstanding the improvements in Q1 2012 and the ongoing credit risks in Dubai, a 'Negative' Outlook is assigned to the FSR. While non-performing loans (NPLs) are high, the Bank does have a good capacity to absorb larger impairment provisions over the coming quarters and CBD's strong operating profitability remains a major factor supporting the FSR.
CBD ranks among the mid-sized banks in the country and has a profitable corporate banking business with a solid reputation in the trade finance area and good transaction banking facilities. There was a deterioration in the Bank's asset quality in 2011; impaired loans had risen, the coverage ratio had fallen and the capital cover for unprovided impaired loans had been reduced. The Bank intends to build its loan portfolio this year and indeed, the first quarter results showed moderate growth. It is still unclear whether bad loans have peaked given the distressed condition of the real estate sector in the emirate. However, key asset quality ratios improved in the first quarter of 2012, with the NPL ratio declining and the coverage ratio rising. Further improvements are expected in the second quarter of 2012.
CBD's strong operating profitability is underpinned by its wide margins, good non-interest income base and low cost to income ratio; the Bank's operating profit to average total assets ratio continues to be higher than the sector average. Return on average assets also continues to be well above the peer-group average. While the Bank continues to maintain a high capital adequacy ratio (CAR), its capital is weakened by the existence of unprovided NPLs. Liquidity ratios continue to be satisfactory owing to the growth of capital and new medium-term funds raised last year.
CBD was established as a public limited company in 1969. It is one of the oldest, local banks in the UAE. Its formation coincided with the beginning of a period of substantial growth for Dubai as a major trading centre. The Dubai government currently has a 20% stake, while prominent Dubai-based business groups hold the remaining shares. CBD is primarily a corporate bank with a strong trade finance business. The Bank also offers a wide range of retail banking products and services.
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