By Nicolas Parasie
Merger of EBI and NBD reduces the need to have four ratings agencies.
Emirates NBD, one of the Gulf region's top banks, said on Wednesday it will stop working with Standard & Poor's, as the lender cited its recently completed merger for dropping the ratings agency.Dubai based Emirates NBD, 56 percent owned by the Dubai government, said that after the merger of Emirates Bank International and National Bank of Dubai, credit ratings are no longer required for these subsidiaries, reducing the need to have four agencies.
S&P, whose rating on these banks was lower than some other agencies, declined to comment.
Emirates NBD's decision came after Dubai Holding, owned by the emirate's ruler, dropped S&P which earlier withdrew its rating on one of its units.
Emirates NBD said it will continue to work with Fitch Ratings, Moody's and Capital Intelligence "who either have a presence in or long standing coverage of the UAE, to provide independent monitoring and rating of its financial strength".
S&P cut several Dubai based banks in December and said more cuts may come. The ratings agency at the time lowered its credit rating on Emirates Bank International to BBB from A-, because of the unit's exposure to Dubai related entities.
Dubai has been in the eye of a debt storm since the emirate late November announced it sought a payment standstill on billions of Dubai World's debt.
Emirates NBD is one of the regional banks most exposed to debt laden conglomerate Dubai World.
JP Morgan analysts estimated the bank's exposure to Dubai to be around two thirds of its loan book, likely to weigh on the bank's annual results which are due in February. (Reuters)
Is this a wise, considered decision that will benefit the shareholders of the institution, or is it a heat of the moment knee jerk reaction? The markets no doubt will answer these questions for us in the coming days.
Rating agencies have always been viewed with suspicion becuase the analytical reports they produce on corporate entities are actually paid for by the corporate entity. These are not independent reports which is why so many rating agencies caught the wrath of the regulators after the credit crisis swung into full flow. Yet, now we see two Dubai corporate entities NOT happy with their 'paid for' reports and because of this they decide to drop S&P. It appears S&P have gone back to basics and are producing reports truthfully and maybe not all that flattering. Dubai wants transparency so we should be able to take the rough with the smooth. Its not as if S&P do not give reasons for their analysis. If all Dubai wants to do is have 'nice' reports then unless their is an opposing view everything will fall apart again. Only wanting the 'good' sounding reports brings into question the integrity of the remaining analytical agenices still on DH & Emirates banks books.