Moody’s downgrades three Dubai-based banks

Moody's Investors Service has downgraded the ratings of three Dubai-based banks — Emirates NBD, Mashreqbank PSC and Dubai Islamic Bank PJSC – that were already under review in August in response to a weakening of economic conditions in Dubai.
These rating actions reflect the ongoing deterioration in Dubai's economy, as exacerbated by the uncertainty created by the announced restructuring of Dubai World and its subsidiary Nakheel, the property development company.
Moody's said that the rating downgrades reflect the weakening in Dubai's economy and the repercussions on the banks' asset quality and earning power. Exposure concentrations to the construction and property sector, as well as Dubai government-related entities, are significant and could entail material losses.
The direct exposures to Dubai World are manageable given high capitalisation levels. However, the rating agency notes that the negative investment sentiment that has been sparked by the restructuring could have longer-lasting effects on Dubai's economy and could constrain the banks' ability to access debt capital markets in a cost-effective manner for longer than was previously expected.
In this respect, Moody's believes that going forward, managing liquidity will be a key focus, rather than loan growth, for the banks whose businesses are concentrated in the Dubai Emirate. This strategy, while necessary in the short term, could be detrimental to the banks' medium-term franchise value and growth prospects, relative to UAE banks that operate primarily in the Abu Dhabi Emirate.
Moody's also expects that the Dubai World standstill, and the risk of contagion, could erode private sector asset quality, which is already burdened by the property market meltdown in Dubai. Continuing rating reviews and negative outlooks reflect these concerns.
Emirates NBD PJSC (holding company of EBI and NBD) reported AED291 bln (US$79 bln) total assets as of September 30, Mashreqbank reported AED100 bln (US$27 bln) total assets and Dubai Islamic Bank reported AED73.6 bln (US$20 bln) total assets.