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Fitch sees real estate weighing on Dubai bank ratings

festival city|By TAP Staff| The UAE banks benefit from an improving operating environment, sound liquidity and sound capital ratios, but some asset quality issues remain in Dubai, largely relating to the weak performance of the real estate sector and some large Dubai government-related entity (GRE) problem loans and profit levels, ratings agency Fitch said in a report.

But both real estate issues and the problem loans of Dubai government entities have substantially improved over time, the agency said.

High loan and deposit concentration is a constraint, but where exposure is directly to the Abu Dhabi government Fitch considers it as less unfavourable. Asset quality deterioration and rapid loan expansion, and subsequent reduction in capital ratios, would be the most likely drivers of negative action on the banks’ viability ratings (VRs). Reduced concentration in loans and deposits could be beneficial for the VRs, although the relative reliance on the government sector and a naturally concentrated borrower base means that upside potential will be limited for most banks.

Fitch affirmed the Long- and Short-term Issuer Default Ratings (IDR) of six UAE banks, including National Bank of Abu Dhabi (NBAD), First Gulf Bank (FGB), Abu Dhabi Commercial Bank (ADCB), Union National Bank (UNB) and Emirates NBD (ENBD).

Given the robust economy, the authorities’ strong track record of support for local banks and no plans for resolution legislation at this stage, downward pressure is considered low.