Moody’s reviews 4 UAE banks for rating downgrade

Moody's Investors Service has placed the ratings of four banks in the United Arab Emirates (UAE) on review for possible downgrade reflecting the rising challenges facing the sector, chiefly triggered by the stressed domestic property market (especially in Dubai), as well as the economic slowdown forecast for 2009 with a modest recovery in 2010.
The four banks affected are Emirates Bank International and National Bank of Dubai (currently merging into Emirated NBD), MashreqBank and Dubai Islamic Bank. In all cases, their bank financial strength ratings (BFSRs) and long-term debt and deposit ratings were placed on review for possible downgrade and short-term ratings affirmed. See details of ratings affected below.
Moody's anticipates that the pressures facing the UAE banking system will result in rising corporate defaults as well as an increase in delinquencies from retail lending — especially among unsecured credits. However, the rating agency acknowledges that the rated banks have responded to the expected deterioration in asset quality by increasing their provisioning levels and improving their Tier 1 capital ratios during the first two quarters of 2009.
The UAE banking system is largely government-owned or controlled and much of the capital improvement has been through the provision of external support (i.e. government injections of Tier 1 capital notes) aimed at ensuring the banks are better prepared for both expected and unexpected levels of loan losses.
"Moody's stress tests of the rated UAE banks' portfolios have indicated that the Abu Dhabi-based banks are more resilient. This primarily reflects two factors: (i) their high Tier 1 capital ratios and (ii) lower concentrations of loans and deposits to the more volatile economic conditions prevailing in the Emirate of Dubai," explained John Tofarides, lead analyst at Moody's for the UAE banks.