Commercial Bank of Dubai gets negative outlook
Dubai, June 2, 2010
Moody's Investors Service has downgraded the local and foreign currency deposit ratings of Commercial Bank of Dubai (CBD), a leading bank in the UAE, by one notch to A3/Prime-2 from A2/Prime-1.
At the same time, Moody's 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.
Today's rating action concludes the rating review initiated in December 2009, said a sttaement from Moody's, which assesses banks' external support using the joint-default analysis framework.
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 says 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 says 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 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.
Although Moody's continues to believe that the UAE central bank and government will be very supportive of CBD, the bank's slightly weakened standalone rating, coupled with the challenging market conditions, its relatively modest market share and the 20 per cent government stake, are better reflected by a three-notch uplift from CBD's BCA due to external support considerations - instead of four notches as previously assigned.
The sensitivity of CBD's ratings to support considerations has resulted in a one-notch downgrade in the bank's deposit ratings.-TradeArabia News Service