Fitch Ratings has today affirmed Emirates NBD's (ENBD) Long-term Issuer Default Rating (IDR) at 'A+', Short-term IDR at 'F1', Support Rating at '1', and Support Rating Floor at 'A+'. The Outlook on the Long-term IDR is Stable. The Individual Rating of 'C' remains on Rating Watch Negative (RWN).
The affirmation of ENBD's Long- and Short-term IDRs reflects the extremely high probability of support from the United Arab Emirates' (UAE) authorities and the emirate of Dubai. ENBD is 56%-owned by the government of Dubai.
The Individual Rating reflects a significant domestic franchise, high revenue-generating capacity, satisfactory capitalisation and an improving liquidity position. It also reflects high levels of exposures to, and the probability of higher impairments from, the riskier Dubai property sector, government-related entities and retail lending, and the likelihood that lending growth and improvements in profitability will be difficult to achieve in 2010 and 2011.
The RWN on the Individual Rating, which Fitch first applied in December 2009, remains in place pending greater clarity on the final outcome of the debt restructuring of Dubai World and other Dubai government-related entities. Fitch expects to resolve the RWN by the end of 2010.
ENBD's results for H110 show that profitability deteriorated y-o-y as income declined and impairments rose slightly (net income dropped 28% to AED1.5bn). The loan book declined by 4% as the operating environment remained challenging. The net interest margin fell slightly to 2.8% (2009: 3%) as funding costs increased, while fees and commissions and other non-interest income also declined. Impairments rose significantly in Q210 to AED1.2bn compared with AED555m in Q110, although compared with H109 they were up only 8%.
However, these charges are likely to continue to rise in H210 and into 2011 as ENBD has not taken any charges against Dubai World or any other Dubai government-related entities. NPLs were a low 3% of the total portfolio, which Fitch believes could understate reality given the significant balances of renegotiated corporate loans, watch list and past due but not impaired loans.
The bank's liquidity position has improved, with the gross loans/total customer deposits ratio at 107% at end-H110 (2009: 122%) and a significant improvement in the net interbank position. Capital ratios have also improved slightly since end-2009, with the Fitch Eligible ratio at 12.4% at end-H110 (end-2009: 11.6%).
ENBD was formed in 2007 by the merger of Dubai's two largest banks, Emirates Bank International (EBI) and the National Bank of Dubai (NBD). It is the largest bank in the UAE and in the entire Gulf Cooperation Council (GCC) in terms of total assets. It has a significant market share in the UAE of about 20%, which is higher in Dubai where its business remains concentrated. The bank is active in retail, corporate and Islamic banking and also has businesses covering brokerage, insurance, and asset management and treasury services.
In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual ratings and the prospect of external support is reflected in Fitch's Support ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs.
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