Moody's Investors Service has today raised Tamweel's Baseline Credit Assessment (BCA) to B1 from B3 and affirmed its Baa3/Prime-3 issuer ratings.
Tamweel's BCA is derived from its E+ standalone Bank Financial Strength Rating (BFSR). In addition, Moody's affirmed Dubai Islamic Bank's D- BFSR, Ba3 BCA and Baa1/Prime-2 issuer ratings, Global Arab Network reports according to a press statement.
Moody's also changed the outlooks on the ratings of Dubai Islamic Bank (DIB) and Tamweel to stable from negative, which also applies to the outlooks on the ratings on all senior unsecured debt issued by both entities. Concurrently, Moody's says that it no longer considers Tamweel to be a Government-Related Issuer (GRI).
The rating actions follow DIB's acquisition of a controlling stake in Tamweel. DIB's shareholding in Tamweel is now 58.25%, up from 20.77% previously. The revised BCA and stable outlook on Tamweel now reflects the fact that the uncertainties on the mortgage lender's future have been partially addressed. Since its inception, Tamweel's key weakness has been its funding mix profile, which has been excessively reliant on wholesale bank deposits. Along with DIB's acquisition, Tamweel has refinanced most of its short-term bank and corporate liabilities across longer maturities, which was the main driver behind the repositioning of its BCA to B1.
In addition, with DIB as a controlling parent, Tamweel can rely on DIB's balance sheet for both day-to-day and emergency liquidity, should the need arise. Furthermore, DIB is expected to provide technical and operating support, commensurate with its managerial control. In terms of product delivery, Tamweel will also benefit from DIB's branch network and from the parent's existing customer base, which remains under-exploited.
Finally, by consolidating Tamweel, DIB can afford to temporarily absorb the subsidiary's losses (derived from high provisioning needs), as DIB remains a profitable entity despite Dubai's currently difficult market conditions.
Along with its controlling stake in Tamweel, DIB has benefited from a 15% balance-sheet growth, especially in retail banking and mortgage finance, two fields that have been among DIB's strategic priorities. Tamweel's portfolio is granular, which brings additional diversification to the combined entity's credit exposures.
Credit positive aspects of the merger include (i) the acquisition has raised DIB's profile in retail banking, where its challenge was to cross-sell and offer a competitive product range; (ii) Tamweel is wellcapitalised, so the impact of the merger on the Group's equity base is negligible; and (iii) DIB's funding structure is well balanced, dominated by retail deposits and has an adequate liquidity cushion that compensates Tamweel's dependence on interbank funds. In terms of balance-sheet management, DIB's core asset liquidity (Dh5 billion at 30 June 2010), is more than sufficient to cover Tamweel's remaining short-term liabilities.