Commercial Bank of Dubai has been assigned stable outlook by Fitch Ratings, but warned the bank's growth in revenue is likely to slow in 2009 given lower expected growth in the UAE economy.
Further pressure on profitability arises as funding costs increase as a result of the international credit crisis and an ever-increasing competition for local customer deposits to fund growth.
Fitch expects higher loan impairment charges as the credit cycle worsens.
Nevertheless, loan impairment charges as a proportion of pre-impairment operating profits were 1.4 per cent in the first nine months of 2008, which, in Fitch's view, is low.
Asset quality is satisfactory, with impaired loans 0.8 per cent of gross loans at end-Q308 and reserves coverage of 91 per cent. However, asset quality ratios have benefited from rapid loan growth, and the latter is a concern as loans season, particularly in a more challenging operating environment along with relatively high borrower concentration.
Liquidity is adequate but appears to have somewhat weakened in 2008 as liquid assets have fallen as a share of the balance sheet.
However, the UAE authorities' recent measures to support liquidity in the banking system provide some comfort. Funding is mostly from customer deposits, which constituted 77per cent of end-Q308 liabilities.
CBD established a $2 billion (Dh7.3bn) EMTN programme in third quarter of 2008 but adverse market conditions have delayed issuance. Additionally, the bank took on a $400 million three-year club-deal with a group of leading international banks in Q308.
Capital is adequate, given the bank's risk profile, with a Fitch eligible capital ratio of 13.6per cent at end-Q308. However, these ratios continue to decline, mainly due to rapid loan growth. The bank aims to maintain the capital adequacy ratio (CAR) at 13per cent. The CAR was 11.2per cent at end-Q308, although this calculation excludes interim profits.
The ratings agency affirmed CBD's ratings at long-term issuer default (IDR) 'A', short-term IDR 'F1', individual 'C', support '1' and support rating floor 'A'.