The ratings reflect the majority shareholding by the government of Abu Dhabi as well as the Bank’s systemic importance given its large size and significant domestic presence.
The financial strength rating is adjusted downwards to ‘A-‘ from ‘A’ in view of the weaker asset quality as well as lower profitability and the continuing tight liquidity. The Outlook reverts to ‘Stable’ from ‘Negative’. The Bank took sizeable impairment provisions this year against its exposure to Dubai World, resulting in a net loss in H1 2010, but key financial ratios were, on the whole, stable and no major deterioration is expected in the second half of this year. Although credit risks remain high, the Bank is poised to benefit from the improved economic outlook for Abu Dhabi.
This is one of the largest banks in the country and is an important player in the retail, wholesale and investment banking markets in the UAE. ADCB made a net loss in 2009 owing to high impairment provision charges, but its core businesses continued to be profitable.
The global financial crisis led to a substantial increase in non-performing loans (NPLs) across the banking sector in the UAE. ADCB’s asset quality ratios weakened substantially in 2009, partly due to the classification of exposures to two Saudi-based business conglomerates which defaulted last year and partly due to higher NPLs in the domestic retail and corporate loan portfolios. The NPL provision coverage ratio fell substantially last year but improved in the first six months of 2010. On the plus side, new NPL classifications appear to have slowed this year and the Bank’s large capital base provides additional cover.
Capital increased substantially last year following the issuance of Tier perpetual I notes to the government of Abu Dhabi and the conversion of long-term fixed deposits placed by the UAE federal government into a subordinated loan, strengthening the capital adequacy ratio. ADCB’s liquidity ratios improved at end 2009 but remained tight. The Bank has focused significantly on expanding its customer deposit base over the last few quarters. This led to a sizeable increase in customer funds in H1 2010 and an improvement in the net loans to stable funds ratio. The Bank also returned to the medium-term debt market in August 2010 with a Malaysian ringgit-denominated bond issue which was well received.
ADCB was created in 1985 by the government of Abu Dhabi through the merger of three distressed retail commercial banks. The government, through the Abu Dhabi Investment Council, owns 65% of the Bank. ADCB is the third largest bank in the country with total assets of Dhs156bn at end 2009.
The Bank has a moderately large network of branches spread across the emirates. ADCB offers a comprehensive range of retail and corporate banking products and services and over the years has built a strong customer franchise. Overseas operations are limited to two branches in India and a 25% stake in RHB Bank, Malaysia (Long-term Foreign Currency rating of BBB assigned by Capital Intelligence).
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