Fitch Ratings has affirmed Emirates NBD’s (ENBD) long-term issuer default rating (IDR) at ‘A+’ and viability rating (VR) at ‘bbb’. The VR has been removed from Rating Watch Negative (RWN).
“The affirmation of ENBD’s long- and short-term IDRs and support rating reflects the extremely high probability of support from the UAE authorities and the Emirate of Dubai, given ENBD’s substantial domestic franchise, majority ownership by the government of Dubai and the long history of support in the UAE,” Fitch in a statement said.
“Liquidity support and term funding have been provided by the UAE authorities to all banks in the system, including ENBD. In addition, the government of Dubai injected Dh4billion of perpetual hybrid Tier 1 capital into ENBD in June 2009 to provide further support to the bank’s capital base. The outlook on the bank’s long-term IDR is Stable and this is unlikely to change unless Fitch’s view of the financial strength of the UAE changes or Fitch changes its view of the probability of support, which is unlikely,” it added.
“The bank’s VR has been affirmed and removed from RWN, as Fitch believes that the bank has sufficient operating revenues to absorb any need for further loan impairment charges, without having any adverse impact on the bank’s capital base. Nevertheless, the current level of impaired loans, reserve coverage and loan concentration continues to be a concern. Any significant deterioration could lead to a downgrade of the VR.”
ENBD has the leading domestic franchise in the UAE with highly diversified revenue streams and high revenue generating capacity, as well as an adequate capital base and improving liquidity. However, ENBD also has significant exposure to the Dubai government and government-related entities (GREs), as well as Dubai real estate, which have exposed the bank to major corporate restructuring in Dubai. Certain large restructured loans have been resolved but problems remain in Dubai real estate.