Fitch assigns ADCB 'A+'; outlook stable

Fitch Ratings has assigned Abu Dhabi Commercial Bank (ADCB) a Long-term foreign currency Issuer Default Rating (IDR) of 'A+' with a Stable Outlook, Short-term IDR of 'F1', Individual Rating of 'C/D', and Support Rating Floor of 'A+'.

Fitch has also affirmed the Support Rating of '1'.

The rating is constrained by the bank's weak asset quality, its vulnerability to high concentration risks in loans and deposits as well as its tight capital and liquidity position.

"Fitch expects a strong rebound in performance during 2011 after a difficult past two years due to worsening asset quality," said Mahin Dissanayake, Director in Fitch's Financial Institutions team in Dubai.

"With the operating environment improving and the bank's new retail banking strategy, underpinned by a strong and resilient franchise it is likely that earnings will improve further."

Fitch's main concern remains ADCB's asset quality. Its non-performing loans (NPL) ratios are among the highest in the UAE as the bank was highly exposed to local and Saudi groups, Saad and Al Gosaibi.
 
Fitch believes that NPL have probably peaked for the bank, and based on Q1 2011 financial information, there appears to have been a small decline in absolute levels.

However, high levels of restructured loans, sizable single name and sector concentrations in lending continue to pose significant asset quality challenges. Despite these risks, with the overall improvement in the operating environment, it is likely that impairment charges may come down during 2011 and further support future profitability.

ADCB's liquidity position is improving with the expansion of its customer deposit base. The bank's Fitch-calculated loans/deposit ratio improved to 111 per cent at in Q1 2011 although it continues to remain among the highest in the UAE.

The bank continues to diversify its funding profile, mainly through international capital markets funding.

Regulatory capital ratios, although satisfactory (Tier 1 ratio of 12.4 per cent at end-Q1 2011), provide a limited cushion to cover the high concentration risks in lending.

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