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Wed 26 Oct 2011 07:28 PM

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Fitch mulls ratings downgrade for Emirates NBD

Ratings agency says it is concerned about rise in bad loans at UAE's biggest bank

Fitch mulls ratings downgrade for Emirates NBD

Fitch Ratings said on Wednesday it had put Emirates NBD, the UAE's biggest bank, on watch for a possible downgrade amid worries about a rise in bad loans due to a weak property market and the global economy.

The ratings agency said in a statement that it had concerns about ENBD's weaker asset quality outlook.

By end-September, the bank's impaired loan ratio increased to 12.9 percent, Fitch said.

It added that although these levels were in line with previous management guidance, Fitch had "increasing concerns that retail, private sector corporate and Islamic lending is deteriorating faster than was previously anticipated".

It said by 2013, ENBD estimated that its impaired loans ratio could reach up to 16 percent.

Fitch said it will decide on a ratings cut over the next six months after the bank publishes its annual results, which may spark a downgrade of one or two levels.

ENBD's acquisition of Dubai Bank, to be completed by end-2011 is considered ratings neutral to slightly negative, Fitch added.

"It will not have an immediate earnings impact and loans are acquired at fair value, so impairment should be minimal," the ratings agency said.

Fitch said it continues to believe that ENBD's large franchise provides ample operating revenues to absorb its ongoing need for further loan impairment charges.

Net income for the first nine months of 2011 was up 20 percent year-on-year to AED2.3bn, underpinned by strong core earnings, and non recurrent gains, despite a sharp rise in impairment charges.

ENBD is majority owned by the Investment Corporation of Dubai, which is the investment arm of the government of Dubai. It is the largest bank in the UAE and in the Gulf Cooperation Council by total assets.

Emirates NBD’s ratings are backed by the “extremely high probability of support from the Dubai government and the UAE authorities, given the bank’s systemic importance,” the statement said.

Emirates NBD is rated A+ by Fitch, its fifth-highest investment grade.

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pro can 8 years ago

Sounds like Fitch might be the problem here, how can a power house like Emirates NBD be fifth from the top in the rating with there endless supply of Cash!

James Ingram 8 years ago

Fitch rating is more than accurate if not conservative due to some many (political) reasons. The bank is expected to reflourish within the next 5 years if things put on the right track. The appointment of the new management is one of the good signs.

Pragmatic 8 years ago

@ Pro Can. Ground reality is quite different. ENBD's deteriorating asset quality is the real cause of concern that may potentially lead to a downgrade - ENBD has high exposure to Dubai's Government Related Entities that are struggling with the huge debt pile.

ENBD is strategically important to Dubai so its Sovereign Wealth Fund - Investment Corporation of Dubai - will make efforts to step in and beef up the bank's capital base. But how much support will it be able to afford?

Remember, ICD has to step in and assist some GREs in paying down a portion of the debt to enable refinancing of upcoming maturities - a prerequisite demanded by the financiers in the past.

Additionally, European banks may not be interested in refinancing deals OR reduce exposure to Dubai due to Euro Zone debt crisis forcing them to take a hair cut on their Greek exposure. It begs the question, how and who will fill this funding gap? ICD may not have that luxury of an 'open tap'!