Fitch affirms credit ratings of FAB, Emirates NBD and ADCB

Higher oil prices and government measures will support operations of the three banks, the ratings agency says

Fitch Ratings maintained Emirates NBD’s A+ default issuer rating. Reuters

Fitch Ratings affirmed the credit rating of three UAE lenders – First Abu Dhabi Bank, Emirates NBD and Abu Dhabi Commercial Bank – citing their strong links with the Abu Dhabi and Dubai governments.

The agency maintained FAB, the UAE's largest lender by assets, at AA-, its fourth highest investment grade rating, which signifies that the bank has very low credit risk.

Meanwhile, Emirates NBD, Dubai’s biggest lender by assets, was assigned an A+ default issuer rating, Fitch’s fifth-highest investment-grade rating, owing to its strong links with the Dubai government.

The ratings agency also affirmed Abu Dhabi Commercial Bank's long-term issuer default rating at A+, with a stable outlook on the back of support available to the bank from the UAE and Abu Dhabi authorities.

A+ ratings, although a notch below AA, are considered high quality and are subject to very low credit risk.

“Government support measures, higher oil prices and eased restrictions have resulted in increasing economic activity and improved economic growth prospects, which should be supportive of UAE banks' operations in the short to medium term,” the ratings agency said.

Fitch also maintained its stable outlook on the three banks as the UAE’s economy continues to grow and the banks receive support from the government.

The UAE introduced initiatives in the past year to help the economy recover from the coronavirus pandemic, including a Dh388 billion ($105.65bn) support package, as well as a Dh50bn Targeted Economic Support Scheme (Tess), to boost liquidity in the financial and banking sector.

The Tess programme, which offered zero-cost collateral funding to banks to encourage lending to the broader economy, has been extended to the end of June 2022.

Fitch expects the UAE economy to grow 1.8 per cent in 2021 and 5.8 per cent next year, while the International Monetary Fund forecasts it to grow 2.2 per cent this year and 3 per cent in 2022.

Lenders in the UAE have benefited from the economic recovery, posting double-digit growth in profits during the third quarter as impairments fall steadily.

FAB reported a 54 per cent jump in third-quarter profit on the back of higher net interest income and gains on investments while Emirates NBD's net profit soared 61 per cent on the back of lower impairment losses and higher net interest income.

ADCB, the UAE’s third-largest lender, reported an almost 36 per cent jump in its nine-month net profit to Dh3.8bn as impairment charges dropped 35 per cent to Dh1.98bn, while net fees and commission income rose 24 per cent to Dh1.38bn.

The recent rating also “reflects the authorities' very strong, timely and predictable record of supporting its domestic banks and strategic ownership of a number of banks, including ADCB, which is 60 per cent owned by Abu Dhabi’s sovereign wealth fund, Mubadala Investment Company”, Fitch said.