Fitch affirms ratings of 11 UAE Banks

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“The affirmation of the banks’ Long-Term IDRs, Support Ratings and Support Rating Floors, except for Emirates Islamic Bank PJSC (EI) and Commercial Bank International (CBI), reflects the extremely high probability of support available from the UAE authorities.

“Fitch’s view of support factors in the sovereign’s strong capacity to support the banking system, sustained by sovereign wealth funds and on-going revenues mostly from hydrocarbon production, despite lower oil prices, and the moderate size of the UAE banking sector in relation to the country’s GDP. Fitch also expects high willingness from the authorities to support the banking sector, which has been demonstrated by the UAE authorities’ long track record of supporting domestic banks, as well as close ties and part government ownership links of a number of banks.

“Six of the sovereign support driven banks – Abu Dhabi Islamic Bank (ADIB), Al Hilal Bank (AHB), Commercial Bank of Dubai (CBD), Dubai Islamic Bank (DIB), Mashreqbank (Mashreq) and Noor Bank (Noor) – have Support Ratings of ‘1’, reflecting the extremely high probability of state support. Three banks – Bank of Sharjah (BOS), National Bank of Ras Al Khaimah (RAKBANK) and Sharjah Islamic Bank (SIB) – have a Support Rating of ‘2’, reflecting lower, but still high, probability of state support. The Support Ratings of ‘1’ for AHB and Noor also factors in the significant government and ruling family ownership by their respective parents.

“Fitch assesses each bank’s systemic importance relative to other banks in the banking system, and takes into account, among other things, market share and franchise.

The ‘A+’ Support Rating Floor of the two Abu Dhabi banks – ADIB and AHB – are at the Abu Dhabi banks’ Support Rating Floor for domestic systemically important banks (D-SIB) of ‘A+’, reflecting their high systemic importance. Abu Dhabi banks’ D-SIB Support Rating Floor is one notch higher than other UAE banks, due to Abu Dhabi’s superior financial flexibility.

The ‘A’ Support Rating Floors of DIB and Mashreq are at the UAE D-SIB Support Rating Floor of ‘A’, reflecting their D-SIB status in the UAE and in particular Dubai. CBD’s and Noor’s Support Rating Floor is one notch below the UAE D-SIB Support Rating Floor due to Fitch’s view that these are less systemically important based on smaller size and market share, and more niche franchises, compared with DIB and Mashreq. The Support Rating Floors for the remaining three banks are ‘BBB+’, two notches below the UAE D-SIB Support Rating Floor, reflecting Fitch’s view of their lower relative systemic importance, due to smaller market shares and franchises.

“The ADIB, AHB, DIB, Noor, SIB and Tamweel (guaranteed by Dubai Islamic Bank) Sukuk vehicles trust certificate issuance programmes; the senior unsecured notes issued under BOS Funding Limited, CBD (Cayman) Limited and RAKFUNDING CAYMAN LTD; and the senior unsecured notes issued directly by the other banks, are rated in line with their respective banks’ IDRs and are therefore subject to the same rating drivers.

“We have reviewed the Sukuk documentation, structure, terms and conditions and there has been no material change in the certificate programmes for the above Sukuk vehicles since the last review. For more details refer to the latest Sukuk vehicle rating action commentaries on our website.

“EI’s IDRs and Support Rating reflect Fitch’s view that EI is a key and integral subsidiary of its 99.89 per cent shareholder, Emirates NBD (ENBD; A+/Stable/F1). ENBD’s IDRs are based on potential support available from the UAE and Dubai authorities, if need be. In Fitch’s view, this support would flow through to EI given EI’s role and track record in the group (offering retail, SME and small corporate Islamic finance services for the group), the high reputational risk to ENBD of an EI default, as well as the Central Bank of United Arab Emirates’ (CBUAE) inclination to favour support as EI operates in the same home market as ENBD.

“The rating of the current outstanding certificates maturing in January 2017 and January 2018 respectively, under EI Sukuk Company Ltd (EI Sukuk, previously EIB Sukuk Company Ltd.), are driven by ENBD’s Long-Term IDR of ‘A+’/Stable. This is due to the Sukuk structure where ENBD, as the guarantor, provides a direct and unconditional guarantee of EI’s Sukuk obligations under the transaction documents as specifically set out in the master trust deed. ENBD undertakes that its obligations under the guarantee will at all times rank at least pari passu with ENBD’s other senior unsecured obligations.

“The programme was updated in May 2016. Among other changes, outstanding certificates maturing May 2021 and any further issuance under the updated programme will not benefit from an ENBD guarantee. The updated certificate issuance programme’s rating is driven solely by EI’s IDR and senior unsecured ratings of ‘A+’. This reflects Fitch’s view that default of these senior unsecured obligations would reflect default of EI in accordance with Fitch’s rating definitions.

“CBI’s IDRs and Support Rating reflect Fitch’s view that CBI is a key affiliate of Qatar National Bank (QNB; AA-/Stable/F1+) due to its role as QNB’s vehicle for UAE lending, an important market for QNB. They also incorporate Fitch’s belief that a CBI default would constitute high reputational risk for QNB as CBI and QNB share the same logo, and the role it plays for QNB. The ratings also reflect our belief that any required support would be easily manageable for QNB given the small size of CBI in relation to QNB. However, our view of potential support is constrained by QNB’s minority 40 per cent stake in CBI, which is the maximum allowed under UAE law for foreign ownership. Fitch believes QNB would be willing to increase its ownership if allowed under UAE regulations.

“QNB’s IDRs are based on potential support available from the Qatar authorities, if necessary. In Fitch’s view, this support would flow through QNB to CBI given the role it plays for QNB.

“The Short-Term IDR of ‘F1’, the higher of the two possible for Long-Term IDR of ‘A-‘, reflects the support available to CBI from its higher-rated parent.”

The rating actions are as follows:

Abu Dhabi Islamic Bank:
Long-Term IDR affirmed at ‘A+’; Outlook Stable
Short-Term IDR affirmed at ‘F1’
Viability Rating affirmed at ‘bb’
Support Rating affirmed at ‘1’
Support Rating Floor affirmed at ‘A+’

ADIB Sukuk Company Limited:
Trust certificate issuance programme affirmed at ‘A+’/’F1’
Senior unsecured certificates affirmed at ‘A+’

Al Hilal Bank:
Long-Term IDR affirmed at ‘A+’; Outlook Stable
Short-Term IDR affirmed at ‘F1’
Viability Rating affirmed at ‘bb’
Support Rating affirmed at ‘1’
Support Rating Floor affirmed at ‘A+’

AHB Sukuk Company Limited:
Trust certificate issuance programme affirmed at ‘A+’/’F1’
Senior unsecured certificates affirmed at ‘A+’

Bank of Sharjah:
Long-Term IDR affirmed at ‘BBB+’, Outlook Stable
Short-Term IDR affirmed at ‘F2’
Viability Rating affirmed at ‘bb’
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB+’

BOS Funding Ltd:
Senior unsecured notes affirmed at ‘BBB+’
Commercial Bank International
Long-Term IDR affirmed at ‘A-‘; Outlook Stable
Short-Term IDR affirmed at ‘F1’
Viability Rating affirmed at ‘b+’
Support Rating affirmed at ‘1’

Commercial Bank of Dubai P.S.C:
Long-Term IDR affirmed at ‘A-‘, Outlook Stable
Short-Term IDR affirmed at ‘F2’
Viability Rating affirmed at ‘bb+’
Support Rating affirmed at ‘1’
Support Rating Floor affirmed at ‘A-‘
Senior unsecured debt affirmed at ‘A-‘/’F2’

CBD (Cayman) Limited:
Senior unsecured notes affirmed at ‘A-‘/’F2’
Dubai Islamic Bank:
Long-Term IDR affirmed at ‘A’; Outlook Stable
Short-Term IDR affirmed at ‘F1’
Viability Rating affirmed at ‘bb’
Support Rating affirmed at ‘1’
Support Rating Floor affirmed at ‘A’

DIB Sukuk Company Limited:
Senior unsecured trust certificates affirmed at ‘A’

Tamweel Funding III Ltd:
Guaranteed senior unsecured trust certificates affirmed at ‘A’

Emirates Islamic Bank PJSC:
Long-Term IDR affirmed at ‘A+’; Outlook Stable
Short-Term IDR affirmed at ‘F1’
Viability rating affirmed at ‘bb-‘
Support Rating affirmed at ‘1’

EI Sukuk Company Ltd.:
Senior unsecured trust certificates affirmed at ‘A’+
Guaranteed senior unsecured trust certificates affirmed at ‘A+’

Mashreqbank:
Long-Term IDR affirmed at ‘A’, Outlook Stable
Short-Term IDR affirmed at ‘F1’
Viability Rating affirmed at ‘bb+’
Support Rating affirmed at ‘1’
Support Rating Floor affirmed at ‘A’
Senior unsecured debt affirmed at ‘A’/’F1’
Subordinated debt affirmed at ‘A-‘

Noor Bank:
Long-Term IDR affirmed at ‘A-‘; Outlook Stable
Short-Term IDR affirmed at ‘F2’
Viability Rating affirmed at ‘b+’
Support Rating affirmed at ‘1’
Support Rating Floor affirmed at ‘A-‘

Noor Sukuk Company Limited:
Senior unsecured trust certificates affirmed at ‘A-‘

RAKBANK:
Long-Term IDR affirmed at ‘BBB+’, Outlook Stable
Short-Term IDR affirmed at ‘F2’
Viability Rating affirmed at ‘bb+’
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB+’

RAKFUNDING CAYMAN LIMITED:
Guaranteed EMTN programme affirmed at ‘BBB+’/’F2’

Sharjah Islamic Bank:
Long-Term IDR affirmed at ‘BBB+’, Outlook Stable
Short-Term IDR affirmed at ‘F2’
Viability Rating affirmed at ‘bb+’
Support Rating affirmed at ‘2’
Support Rating Floor affirmed at ‘BBB+’

SIB Sukuk Company III Limited:
Senior unsecured trust certificates affirmed at ‘BBB+’

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