Moody’s Investors Service affirmed the long-term and short-term foreign currency deposit ratings of Emirates NBD after it agreed to buy Turkey’s DenizBank for $3.2 billion, the biggest acquisition for Dubai’s top lender.
Moody’s, which maintained a stable outlook for Emirates NBD’s long-term deposit rating, said the acquisition will reap benefits for the Dubai lender, which is majority owned by the Investment Corporation of Dubai, the emirate’s sovereign wealth fund.
“The affirmation of ENBD's ba1 BCA reflects Moody's view that the Denizbank acquisition will have the potential to improve ENBD's profitability by broadening its regional franchise, increasing its growth opportunities and diversifying its earnings base,” Moody’s said.
The acquisition will also reduce Emirates NBD’s “large related party credit concentration to the Dubai government to around 32 per cent of gross loans, from 44 per cent at the end of 2017," the rating agency added.
Emirates NBD, which has operations in Egypt, Saudi Arabia, India, Singapore, the United Kingdom, and representative offices in China and Indonesia, is expanding its footprint to boost revenue amid limited opportunities for growth in the UAE market, where more than 50 lenders operate.
The deal, which is subject to regulatory approval in Turkey, Russia, the UAE and other relevant jurisdictions, is expected to close in 2018.
But the take-over faces challenges in Turkey.
“Challenges from the acquisition include exposure to the weaker Turkish operating environment, as well as Denizbank's modest capitalisation relative to its problem loans ratio, that is above the Turkish system average,” rating agency said.
“Moody's expects that the operating environment faced by Turkish banks will remain challenging because of lower economic growth, unorthodox monetary policy proving ineffective in fighting double-digit inflation, currency depreciation, continuing erosion of institutional strength and high unemployment.”