Moody’s Reviews Four Banks for Possible Downgrade

The banks being appraised are Emirates Bank International, MashreqBank, Dubai Islamic Bank and National Bank of Dubai — which is in the process of merging with Emirates NBD. “Moody’s anticipates that the pressures facing the UAE banking system will result in rising corporate defaults as well as increase in delinquencies from retail lending — especially among unsecured credits,” the ratings agency said in a statement.

Moody’s acknowledged that the banks have already acted on the anticipated deterioration in their asset quality by significantly raising their provisions for loan losses in the first half of the year. The global economic slump has pummeled the UAE property sector as liquidity has dried up, with property prices plunging by about 50 per cent from their peak levels in 2008. Deutsche Bank predicted in June that property prices and rentals would fall by as much as an additional 20 per cent by the end of the year, as new supplies outstripped demand.

Earlier this year, the UAE central bank injected liquidity into local banks to help revive lending activity. The UAE banking system is largely government-owned or controlled, and much of the capital improvement has been through the provision of external support such as government injections of Tier 1 capital notes, aimed at ensuring that banks have the capacity to absorb expected as well as unexpected loan losses.

“Moody’s stress tests of the rated UAE banks’ portfolios have indicated that the Abu Dhabi-based banks are more resilient. This primarily reflects their high Tier 1 capital ratios and lower concentrations of loans and deposits to the more volatile economic conditions prevailing in Dubai,” said John Tofarides, lead analyst at Moody’s for the UAE. — rocel@khaleejtimes.com