Fitch sees RAKBANK viability constrained

|By TAP Staff| Fitch Rating sees RAKBANK’s viability rate (VR) constrained by its fairly small franchise rising credit risk exposure due to its expansion in unsecured SME lending and pressure on liquidity from a wide asset-liability maturity mismatch. The bank accounts for only 2 percent of the UAE banking assets, it notes.

According to Fitch, RAKBANK’s viability rating could be negatively affected if the bank’s expansion in unsecured SME lending leads to a sharp rise in NPLs or problem loans. Any worsening in the bank’s asset-liability maturity mismatch could also lead to a downgrade

However, it notes that the risk to asset quality is counterbalanced in the interim by the bank’s strong capital position.. The rating could be upgraded if the bank fully addresses its issues in funding and liquidity, further diversifies its business and if there is an overall improvement in the operating environment.

Fitch Ratings has affirmed the Long-term and Short-term Issuer Default Ratings (IDR) of nine UAE banks as part of its first peer review of the UAE banking sector. It has also upgraded Sharjah Islamic Bank’s (SIB) viability rating   and affirmed the VRs of the other eight banks and all other ratings. SIB’s VR upgrade reflects Fitch’s view that its asset quality, combined with strong capital and liquidity ratios, now compares better with peers.

New programme ratings have been assigned to Emirates NBD’s (ENBD) and First Gulf Bank’s (FGB) new AUD programmes in line with the respective banks’ Long- and Short-term Issuer Defaults Ratings (IDRs). The affirmation of the banks’ Long Term IDRs, Support Ratings and Support Rating Floors, except for HSBC Bank Middle East Limited (HBME), reflects the extremely high probability of support available from the UAE authorities, and governments of Abu Dhabi and Dubai, if required.

Fitch’s opinion of support is based on the ability and willingness of the authorities to support the banking sector, which has been demonstrated by UAE authorities’ long track record of supporting domestic banks, as well close ties and ownership links with the government in a number of banks. Fitch’s view of support also considers the sovereign’s strong capacity to support the banking system, sustained by its sovereign wealth funds and on-going revenues mostly from its hydrocarbon production, and the moderate size of the UAE banking sector in relation to the country’s GDP.

Five of the banks – National Bank of Abu Dhabi (NBAD), FGB, Abu Dhabi Commercial Bank (ADCB), Union National Bank (UNB) and ENBD – have their Support Ratings at ‘1’, reflecting the extremely high probability of state support. Three banks – Bank of Sharjah (BOS), National Bank of Ras Al Khaimah (RAK) and SIB – have a Support Rating of ‘2’, reflecting lower systemic importance.

The ‘AA-‘ Support Rating Floor of NBAD reflects its flagship status in the UAE and Abu Dhabi in particular, at one notch above Abu Dhabi banks’ domestic systemically important financial institution (D-SIFI) Support Rating Floor of ‘A+’.

The other three Abu Dhabi banks – FGB, UNB and ADCB – reviewed in this committee are at the D-SIFI Support Rating Floor of ‘A+’, reflecting their high systemic importance. Abu Dhabi banks’ D-SIFI Support