Moody's places ratings of 4 Dubai banks on review

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ON REVIEW: Moody's places ratings of four UAE banks on review for possible downgrade. (Getty Images)

Moody’s Investors Service on Monday placed the ratings of four UAE banks on review for possible downgrade.

The review reflects the rising challenges facing the sector, chiefly triggered by the stressed domestic property market (especially in Dubai), as well as the economic slowdown forecast for 2009 with a modest recovery in 2010.

The four banks affected are Emirates Bank International and National Bank of Dubai (currently merging into Emirates NBD), MashreqBank and Dubai Islamic Bank.

In all cases, their bank financial strength ratings (BFSRs) and long-term debt and deposit ratings were placed on review for possible downgrade and short-term ratings affirmed.

The agency said it anticipates that the pressures facing the UAE banking system will result in rising corporate defaults as well as an increase in delinquencies from retail lending - especially among unsecured credits.

However, it acknowledges that the rated banks have responded to the expected deterioration in asset quality by increasing their provisioning levels and improving their Tier 1 capital ratios during the first two quarters of 2009.

"Moody's stress tests of the rated UAE banks' portfolios - under both a base-case and a more adverse (or stressed) scenario - have indicated that the Abu Dhabi-based banks are more resilient.

''This primarily reflects two factors: (i) their high Tier 1 capital ratios and (ii) lower concentrations of loans and deposits to the more volatile economic conditions prevailing in the Emirate of Dubai," said John Tofarides, lead analyst at Moody's for the UAE banks.

For all the banks, the review is expected to be completed in the next few months. Based on its stress-test results, Moody's does not, at this stage, anticipate that a multi-notch downgrade will be warranted for any of the rated entities.

The agency noted that Monday’s rating actions reflect a forward-looking approach based on anticipated loss estimates and that it will continue to monitor the ratings, in particular for any significant changes from the currently anticipated scenarios over the next 12 to 18 months.

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