Mashreq, CBD off negative watch

A sharp deterioration in asset quality or a material decline in profitability could place downward pressure on CBD's Individual Rating, said Fitch (FILE)

Fitch Ratings on Wednesday announced that it had removed Mashreq bank and Commercial Bank of Dubai from Rating Watch Negative following their clarification about exposure to Dubai World (DW) restructuring.

The ratings agency believes that banks’ exposure is “manageable.”

It affirmed Mashreq’s Long-term Issuer Default Rating (IDR) at “A” with a Stable Outlook, Short-term IDR at 'F1', Support Rating at '1', Support Rating Floor at 'A' and Subordinated Notes at 'A-'.

The affirmation of the Individual Rating reflects the bank's weaker asset quality and rising impaired loan ratios in a difficult operating environment, as well as loan and deposit concentrations. It also considers strong franchise and diversified revenue streams. In Fitch's opinion, the bank has manageable DW exposure in light of the debt restructuring agreements.

Further deterioration in asset quality and further reductions in profitability could place downward pressure on the bank's Individual Rating. Upside potential is limited, unless profitability and asset quality materially improve.

Fitch expects Mashreq to remain profitable, although its earnings in 2010 were affected by lower lending volumes, falling net fee and commission income and reduced insurance subsidiary income.

Fitch said Mashreq’s asset quality is weak, albeit stabilising, after its NPL/gross loan ratio rose to 8 per cent at end of first 9 months of 2010.

NPLs are likely to continue to increase due to the difficult operating environment, albeit at a more moderate pace. The bank has concentrations of large exposures, which raises further concerns about asset quality.

Fitch Ratings also affirmed Commercial Bank of Dubai's Long-term Issuer Default Rating (IDR) at 'A-' with a Stable Outlook, Short-term IDR at 'F2', Individual Rating at 'C', Support Rating at '1' and Support Rating Floor at 'A-'.

Fitch said a sharp deterioration in asset quality or a material decline in profitability could place downward pressure on the bank's Individual Rating. An upgrade of CBD is considered unlikely.

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