By Neeraj Gangal
S&P’s also withdraws counterparty credit ratings, debt ratings for both banks.
Standard & Poor's Ratings Services said on Friday that it has affirmed its 'BBB/A-2' long- and short-term counterparty credit ratings on Dubai-based Emirates Bank International (EBI) and National Bank of Dubai (NBD), which have been merged into Emirates (not rated).
The outlooks are negative.
“We removed the ratings from CreditWatch, where they were originally placed on Nov. 26, 2009, with negative implications. We subsequently withdrew the counterparty credit and debt ratings on both banks, at their request,” the ratings agency said in a statement.
Standard & Poor's bases the ratings on EBI and NBD on its analysis of ENBD, created from the merger of EBI and NBD.
"At the time of withdrawal, the ratings reflected our view of ENBD's weakening financial profile owing to the depressed economic environment in Dubai and its high exposure to weakened Dubai government-related entities (GREs)," said Standard & Poor's credit analyst Paul-Henri Pruvost.
“These two factors will in our view exert strong pressure on ENBD's asset quality and earnings, while potentially raising hurdles for ENBD to refinance AED7bn of wholesale debt coming due in 2010. These developments would in turn weaken capital, in our view. The negative outlooks therefore reflect the likely downward pressure we see on the banks' stand-alone credit profiles (SACPs).”
However, S&P’s noted that the positive rating factors include ENBD's leading commercial position and its adequate preprovision earnings capacity.
“We also factor into the ratings strong ongoing funding support coming from the UAE authorities,” it said.
“At the time of the withdrawal, the long-term ratings benefited from three notches of uplift above the SACPs of EBI and NBD, reflecting our expectation of strong likelihood of extraordinary support to the merged entity, ENBD, from the UAE authorities in case of need. This reflected our opinion that ENBD should be considered as a highly systemically important bank in the UAE, which we categorise as "interventionist" toward its banking system.”
ENBD is 55.6% owned by the government of Dubai through the Investment Corporation of Dubai. ENBD has a leading position as the UAE's largest banking group and plays an important role in the financing of the economy.
Emirates NBD said on Wednesday it will stop working with Standard & Poor's, as the lender cited its recently completed merger for dropping the ratings agency.
The bank 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.
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.
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.