Fitch mulls ratings downgrade for Emirates NBD

Fitch Ratings said on Wednesday it had put Emirates NBD, the UAE's biggest bank, on watch for a possible downgrade amid worries about a rise in bad loans due to a weak property market and the global economy. The ratings agency said in a statement that it had concerns about ENBD's weaker asset quality outlook. By end-September, the bank's impaired loan ratio increased to 12.9 percent, Fitch said. It added that although these levels were in line with previous management guidance, Fitch had "increasing concerns that retail, private sector corporate and Islamic lending is deteriorating faster than was previously anticipated". It said by 2013, ENBD estimated that its impaired loans ratio could reach up to 16 percent. Fitch said it will decide on a ratings cut over the next six months after the bank publishes its annual results, which may spark a downgrade of one or two levels. ENBD's acquisition of Dubai Bank, to be completed by end-2011 is considered ratings neutral to slightly negative, Fitch added. "It will not have an immediate earnings impact and loans are acquired at fair value, so impairment should be minimal," the ratings agency said. Fitch said it continues to believe that ENBD's large franchise provides ample operating revenues to absorb its ongoing need for further loan impairment charges. Net income for the first nine months of 2011 was up 20 percent year-on-year to AED2.3bn, underpinned by strong core earnings, and non recurrent gains, despite a sharp rise in impairment charges. ENBD is majority owned by the Investment Corporation of Dubai, which is the investment arm of the government of Dubai. It is the largest bank in the UAE and in the Gulf Cooperation Council by total assets. Emirates NBD’s ratings are backed by the “extremely high probability of support from the Dubai government and the UAE authorities, given the bank’s systemic importance,” the statement said. Emirates NBD is rated A+ by Fitch, its fifth-highest investment grade.