Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the Foreign Currency Ratings of the UAE’s Commercial Bank of Dubai Limited (CBD) at ‘A-’ Long-Term with a ‘Stable’ Outlook and ‘A2’ Short-Term; these ratings continue to be underpinned by the demonstrated support of the federal government and the high likelihood of future support, as well as the Bank’s overall good financials. The Support rating of ‘2’ is maintained.
The Bank’s Financial Strength Rating is maintained at ‘BBB+’; strong profitability, a solid capital adequacy ratio (CAR) and overall good liquidity are major supporting factors, while the still high non-performing loan (NPL) ratio, customer concentrations in loans and deposits and continuing elevated credit risks in the domestic operating environment are constraining factors. CI notes that key ratios have strengthened in recent periods and are likely to improve further this year. The Outlook is therefore maintained at ‘Stable’. Dubai’s favourable future prospects were also a major consideration while assigning the Outlook.
CBD is a medium-sized bank in the UAE with a well-established corporate banking franchise, a strong reputation in the trade finance segment and a growing retail business which focuses mainly on affluent individuals. CBD’s asset quality ratios are strengthening gradually, with NPLs recording some declines in recent periods and the LLR coverage ratio rising. Prospects for a further decline in NPLs are good given the increase in the value of real estate collateral held by the Bank. CBD’s large capital provides additional cover for unprovided NPLs. The Bank also generates enough operating profits to take more aggressive provisions on NPLs if required. NPL classifications this year are likely to remain low, at least going by the relatively small amount of past due loans on the Bank’s books.
The Bank remains solidly capitalised despite repaying its subordinated debt last year. Liquidity ratios are good and key ratios improved in 2013. Customer deposits and capital are the Bank’s primary sources of funds. CBD also has a sizeable demand deposit base which has been stable over many years; this has contributed to its low funding cost. Customer deposits are being targeted aggressively by the major businesses this year, and liquidity ratios are expected to be maintained at their current good levels. Customer concentrations remain moderately high in both loans and deposits, but are better than those of many large banks.
The Bank is very profitable with a high return on average assets (ROAA) and operating profitability. CBD has consistently turned in strong results over many years, including during the post-2008 period when many banks suffered substantial loss of income. Wide net interest margins (NIMs), a fairly large and diversified non-interest income (NII) base and good cost control have underpinned the Bank’s impressive performance over the years. Key ratios remained sound in Q1 2014, although the operating profitability ratio fell slightly owing to narrowing margins – which is an industry-wide trend.
CBD was established as a public limited company in 1969. It is one of the oldest local banks in the UAE. Its formation coincided with the beginning of a period of substantial growth for Dubai as a major trading centre. The Dubai government currently has a 20% stake, while prominent Dubai-based business groups hold the remaining shares. CBD’s AED43 billion balance sheet at end 2013 places it among the mid-sized banks in the country.
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