Standard & Poor's has revised its ratings on four Dubai-based banks, saying a sharp correction in real estate has increased risks to the economy and hurdles for the banks.
S&P revised the counterparty credit ratings on Emirates Bank International, National Bank of Dubai and Mashreq bank down by one notch to A-minus from A. It also revised down the counterparty rating on Dubai Islamic Bank by one notch to BBB-plus from A-minus.
"The economic slowdown, stock market decline, and dropping real estate prices are raising significant hurdles for the banks," S&P said in a statement. "Looking forward, we expect these factors to significantly slow business growth and lead to a deterioration in asset quality and profitability."
Property prices have dropped since late last year when a global financial crisis and decline in oil prices reversed a boom in the Gulf.
"We expect the impact on overall economy to be significant, as construction and real estate account for almost 50 per cent of the emirate's GDP," S&P said.
Banks have been receiving significant support from the federal authorities, S&P said. Banks' asset quality is still expected to deteriorate significantly, however, the rating agency said. "We expect strong support to systemically important banks in case of need," S&P said. For that reason, the long-term ratings on the four Dubai banks are one to two notches above their stand-alone credit profiles, it said.
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