To date in 2009, liquidity and the property sector are still concerns, with the non-Abu Dhabi based banks now looking relatively under-capitalised and potentially more vulnerable to any future deterioration in the economy.
The tough global economic environment had a negative impact on the Q408 profits of UAE banks, although the severity of the impact was varied across the sector.
The main banks that have reported headline figures to date all remain profitable for the full year, although Q408 figures show a significant decline in net income compared to the previous three quarters in 2008.
Long-term ratings remain driven by the probability of support from the UAE authorities, the strongest emirate of which is Abu Dhabi (rated ‘AA’/Stable).
Fitch’s view of support for the non-Abu Dhabi based banks has not changed in light of the recent announcement by the Abu Dhabi government of the proposed capital injections totalling Dhs16bn into five institutions in Abu Dhabi, with the agency believing that there is an extremely high probability of support for the vast majority of banks it rates in the UAE.
Fitch’s expectation of a more challenging environment and likely reduced profitability for banks in the region resulted in a number of Individual rating downgrades for UAE based banks in December 2008 (see ‘Impact of the Global Economic Crisis on GCC Bank Ratings’ published 18 December 2008).
The main concerns related to lower regional growth, a deteriorating liquidity position, higher funding costs, increased loan and investment impairments and significant exposure to a property price bubble (most markedly in Dubai).
Robert Thursfield, Director in Fitch’s Banks team, says:
“Although most banks have reported headline numbers, Fitch has yet to review the banks’ full audited financial statements and will reserve judgement on whether any further rating changes are necessary until it has done so over the next couple of months.”
The performance of most banks remained satisfactory in Q408, with the exceptions of Abu Dhabi Commercial Bank (net loss of Dhs260m), Emirates NBD (net profit of Dhs14m) and Union National Bank (net profit of Dhs66m).
Nevertheless the full year net income of these three institutions each exceeded Dhs1bn (Dhs1.36bn, Dhs3.68bn and Dhs1.44bn respectively). The principal reasons for the Q408 performance were higher impairments and negative mark-to-market valuations in investment portfolios. These factors have also undermined the Q408 performance for many other banks (to date National Bank of Abu Dhabi, Mashreqbank, First Gulf Bank, Abu Dhabi Islamic Bank and RAK Bank), although not to the same extent.
Tuesday, February 17- 2009 @ 11:14 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.