Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the Financial Strength Rating (FSR) of UAE’s Mashreqbank at ‘BBB+’, with the Bank’s solid capital adequacy ratio (CAR), good return on average assets, strong liquidity and improving loan-loss reserve coverage ratio being major supporting factors. A high level of restructured loans, customer concentrations in the deposit base and lurking challenges in the operating environment are constraints. In view of the improvements in asset quality ratios in recent periods and the Bank’s strong performance in Q1 2014, a ‘Positive’ Outlook is assigned to the FSR.
The Foreign Currency (FC) Ratings are affirmed at ‘A-’ Long-Term and ‘A1’ Short-Term. These ratings reflect the demonstrated support of the federal government, as well as the Bank’s strong capital base and liquid balance sheet. Given its size and systemic importance, timely assistance from the UAE government in case of need is very likely. The Bank’s Support Rating of ‘3’ is therefore maintained. A ‘Stable’ Outlook is assigned to the FC Rating.
MB’s asset quality ratios strengthened last year with the non-performing loans (NPL) ratio declining substantially on the back of reduced impairments of corporate and retail loans. MB’s loan-loss reserve coverage ratio rose significantly last year and exceeded 100% in Q1 2014.
The Bank’s large capital provides additional cover for NPLs. Although the CAR has fallen in recent periods, with the growth in risk-weighted assets, it remains at a solid level. Good earnings and conservative dividend payment policies have underpinned the growth in capital over the years. Liquidity ratios continue to be very strong and are the best among the large banks in the country – although key ratios tightened last year with the expansion of the credit portfolio. Customer deposits (and particularly demand balances) rose briskly in 2013 and in Q1 2014, reflecting management’s funding strategies focusing on expanding the low-cost deposit base. This has contributed to the widening of the net interest margin.
The Bank performed well last year, with both operating profit and net profit recording strong growth. MB’s net interest income grew robustly on the back of higher loan volumes and a wider net interest margin, while non-interest income benefited from the strong growth in fees, commissions and foreign exchange profits. Key profitability ratios continued to improve and many ratios are currently better than the peer group average. MB’s large, recurring non-interest income base has helped the Bank to maintain its good operating profitability even through difficult times. The Bank had also successfully managed its operating costs during the crisis-ridden years and its cost to income ratio remains satisfactory. The Bank’s costs to average total assets ratio is higher than the peer group average but so is its gross income level.
With total assets of AED86.6 billion at end 2013, MB ranks among the larger commercial banks in the country. It is majority owned by the Al Ghurair family which operates major businesses in the UAE. The Bank has a diversified business with multiple revenue streams; its key businesses from the point of view of revenue generation are retail banking and corporate banking. MB operates a reasonably large network of domestic branches. Overseas it has branches in Egypt, Qatar, Bahrain and Kuwait as well as in Hong Kong, India, London and New York.
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