Moody’s downgrades Commercial Bank of Dubai with negative outlook

Moody's Investors Service has downgraded the local and foreign currency deposit ratings of Commercial Bank of Dubai PJSC (CBD) by one notch to A3/Prime-2 from A2/Prime-1. At the same time, it has confirmed CBD's bank financial strength rating (BFSR) at D+, which maps to a baseline credit assessment (BCA) of Baa3. The long-term deposit ratings have a negative outlook, reflecting the moderate risk of further deterioration in the credit fundamentals of Dubai-based corporates that could impact the bank's BCA and deposit ratings.
Although CBD's standalone strength has somewhat weakened as a result of the ongoing credit issues surrounding the Dubai corporate sector in which the bank is active, Moody's said that the bank's BCA remains at the Baa3 level and within the D+ BFSR category. Moody's stress-tests of CBD's exposures to the troubled Dubai government-owned entities (Dubai World and Dubai Holdings) show that the bank appears resilient.
However, Moody's said that a moderate risk of further deterioration in the credit fundamentals of Dubai-based corporates could impact the bank's BCA. Moreover, CBD's recurring earnings capability and capitalisation levels remain strong, although liquidity and funding remain an area to monitor for all Dubai-based banks as risk aversion in global debt capital markets continues and competition for deposits in the UAE intensifies.
The rating agency added that funding pressures in the UAE will prevent the Dubai-based banks from engaging in new lending for some time, thereby impacting their short- to medium-term growth prospects.