Moody’s reaffirms NBAD’s ratings

Moody's affirms ratings on National Bank of Abu Dhabi amid expectations of growth on the back of retail business.

Moody’s Investor Services has maintained its ratings of the National Bank of Abu Dhabi following the bank’s merger with FGB on the expectation that the consumer banking business of the new combined entity, First Abu Dhabi Bank, will boost overall profitability.

The credit rating agency affirmed the long and short-term foreign and local currency deposit and debt ratings of NBAD at Aa3/P-1.

At the same time, Moody’s altered the ratings of FGB to match that of NBAD before saying it would withdraw the ratings altogether following the delisting of the shares in FGB.

“The combination creates one of the largest banks in the GCC region, which will support organic growth opportunities and growth opportunities and moderate NBAD’s very high borrower concentrations,” said Akin Majekodunmi, a London-based senior analyst at Moody’s.

“We expect the stronger retail franchise of the merged entity to drive solid margins, which will support improved profitability going forward.”

First Abu Dhabi Bank will have assets in excess of Dh670 billion, making it the UAE’s largest bank and the second-largest in the Middle East by assets, behind Qatar’s QNB at US$198bn.

Shares in First Abu Dhabi Bank, listed under the NBAD ticker, were traded on the Abu Dhabi stock exchange on Sunday for the first time.

Under the terms of the merger, FGB shareholders received 1.254 NBAD shares for each FGB share held. FGB shares have subsequently been delisted.

The merger, which was approved by both banks’ shareholders on December 7, was done in part to cut down on costs by removing duplicate posts and sharing resources.

The move is expected to produce cost savings of about Dh400 million a year in the next three years, according to research from the Egyptian investment bank EFG Hermes.

Even though NBAD, the biggest bank by assets in the UAE, had made headway in building its consumer-banking business, it will get a boost from joining forces with FGB, which has more loans to individuals on its books. Retail lending accounts for about 40 per cent of FGB’s total lending book, while NBAD’s consumer lending portfolio makes up just 17 per cent of its outstanding loans.

Investors have backed the combination, especially as NBAD is considered one of the safest banks in the world; its high credit ratings will allow it to borrow at low cost on behalf of the new entity. Even though government ownership in NBAD has been reduced to 33.5 per cent from 70 per cent as a result of the merger, Moody’s said it was highly likely that the Government would continue to support deposits.

The rating agency said, despite the affirmation and upgrades, the outlook on NBAD’s long-term deposits and debt ratings was kept at negative in line with the outlook for the Aa2 long-term issuer rating of the UAE Government.

“The continuing negative outlook is in line with the negative outlook on the Aa2 rating of the UAE Government which captures UAE’s fiscal pressures as a result of lower oil prices which could weaken its capacity to provide support over time,” Moody’s said.

Follow The National's Business section on Twitter