Moody's assigns stable ratings to CBD

Moody's Investors Service has assigned A2 long-term and Prime-1 short-term deposit ratings and a D+ bank financial strength rating (BFSR) to Commercial Bank of Dubai (CBD).

The outlook for the ratings is 'stable'.

According to Moody's statement, CBD's D+ BFSR – that maps to a Baa3 Baseline Credit Assessment – reflects the bank's small, but well-established, domestic franchise and its strong overall financial metrics, in particular, profitability, capitalisation and operational efficiency.

However, Moody's explains that the rating also takes into account the bank's modest market shares, its lack of business and geographical diversification – given its predominant corporate banking profile and the concentration of its business activities in the UAE – as well as its significant, though declining, single-name borrower concentrations.

In terms of assets, CBD is the 13th largest of the 52 banks operating in the UAE, with a market share of around 2.5 per cent as of March 2008.

Furthermore, the bank's asset quality continues to improve with a declining nonperforming loans ratio, largely driven by a robust credit growth and an enhanced risk management approach.

Moody's cautions, however, that the rapid credit expansion witnessed in recent years suggests that CBD's loan book has not yet seasoned and its credit quality will truly be tested during a macroeconomic slowdown, which could be triggered, among others, by a severe real-estate correction or geopolitical instability.