Fitch Ratings has affirmed National Bank of Abu Dhabi’s(NBAD) Long-term Issuer Default Rating (IDR) at ‘AA-‘ with a Stable Outlook and its Viability Rating at ‘a-‘.
NBAD’s IDRs, Support Rating and Support Rating Floor reflect Fitch’s belief that there is an extremely high probability of support from the government of Abu Dhabi (rated ‘AA’/Stable/’F1+’) in the first instance, and also from the UAE authorities, if required. This is based on NBAD’s importance to Abu Dhabi and to the UAE banking system, the bank’s majority (70.5%) ownership by – and close ties to – the Abu Dhabi government, and the UAE authorities’ long record of support for domestic banks.
The Viability Rating reflects the bank’s strong franchise, especially in Abu Dhabi; its close links to the Abu Dhabi government, which benefit both its lending and its funding profile; its consistently sound profitability; and its relatively sound asset quality, despite some deterioration. The rating also reflects concentrations in loans and deposits and risks inherent in the UAE operating environment.
The IDRs, Support Rating and Support Rating Floor are sensitive to Fitch’s view of the creditworthiness of the Abu Dhabi and the UAE authorities and Fitch’s view of their continuing propensity to support the banking system. There is little upside for the VR. It would be adversely affected by deterioration in asset quality significant enough to materially weaken the bank’s capital, which Fitch does not expect at present.
Loan quality weakened in 2011, although with impaired loans at only 2.9% of the loan book, NBAD’s loan quality ratios still compare well with those of peers. Problems were concentrated in the real estate portfolio. Reserve coverage remained satisfactory, stronger than peers’ at 99% of impaired loans. NBAD is one of only very few UAE banks whose impaired loans are fully covered by reserves. There is likely to be some further weakening of loan quality, stemming mainly from the ongoing pressures in some segments of the real estate market.
However, with high coverage levels and strong profit generation, NBAD should be well able to absorb any likely increase in impaired loans.
Liquidity is a key focus for NBAD. The bank’s liquidity management is more advanced than many of its peers. The bank has a relatively diversified funding base but deposits are still the major source of funding. Capitalization is adequate with regulatory Tier 1 and Fitch core capital ratios of 15.6% and 12.8%, respectively, at end-2011. Fitch core capital does not include AED4bn of perpetual securities, classified as Tier 1, and held by the government of Abu Dhabi.
NBAD is Abu Dhabi’s flagship bank, with historically strong ties to the Abu Dhabi government. It is one of the primary bankers to the government of Abu Dhabi and to public sector companies in the emirate. NBAD is the largest bank in Abu Dhabi and the second-largest in the UAE, accounting for around 12% of system assets.
