ADCB's ratings remain unchanged following weak nine-month results.

Byline: [e-mail] (Staff Writer)

Abu Dhabi Commercial Bank (ADCB) - the third-largest bank in the United Arab Emirates (UAE) in terms of assets - recently published its operating results for the first nine months of FY Dec 2009.

The Bank's nine-month financials revealed deterioration in both its asset quality and earnings performance; for the same period, the bank's pre-tax profit declined 57 per cent year-on-year to AED 703.7 million ($191 million), depressed by heightened provisions for bad credits. As at end-September 2009, ADCB's gross and net NPL ratios had climbed up to 4.2 per cent and three per cent, respectively (end-FY Dec 2008: 1.1 per cent and 0.3 per cent).

Related to this, ADCB has significant exposure to the Saudi Arabia-based Saad and Algosaibi groups, while new delinquencies have been filtering through in recent months.

"We have reaffirmed ADCB's ratings in August 2009, underpinned by the strong connection between the Bank and the Government of Abu Dhabi, whose support has been clearly demonstrated amid the current global financial crisis," explained Promod Dass, RAM Ratings' Head of Financial Institution Ratings. The Government of Abu Dhabi owns a 65 per cent - stake in ADCB. "The bank's weaker performance in 3Q FY Dec 2009 is not completely unexpected, as noted in our press release in August 2009," he added.

"ADCB's profitability is likely to remain pressured over the next few quarters, in view of potential charges against bad credits. Nevertheless, we estimate that ADCB has an adequate capital buffer to absorb additional rises in credit cost," notes Dass. As at end-September 2009, ADCB's Tier-1 and overall risk-weighted capital-adequacy ratios stood at a robust 14.3 per cent and 19.4 per cent, respectively.

In the first quarter of 2009, the Federal Government of the UAE and the Government of Abu Dhabi had injected AED 10.6 billion ($2.8 billion) into the bank as a prudent and proactive measure to boost its capital position; this underscores our view on the firm support that ADCB enjoys.

"That said, however, we will remain vigilant on ADCB's performance, and take the appropriate rating actions if necessary," stated Dass.

RAM Ratings reaffirmed the ratings of ADCB and ADCB Finance (Cayman) Limited (ADCB Cayman) in August 2009. ADCB's long- and short-term financial institution ratings currently stand at a respective AAA and P1. Meanwhile, ADCB Cayman's proposed RM3.5 billion Senior Unsecured MTN Programme carries an issue rating of AAA(bg); ADCB Cayman is a wholly owned funding conduit for ADCB, which guarantees the securities to be issued by the former. All the long-term ratings have a stable outlook.

2009 CPI Financial. All rights reserved.

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