Published on 07 Feb 2019.
RAM Ratings has reaffirmed the AAA/Stable/P1 financial institution ratings of Abu Dhabi Islamic Bank (ADIB or the Bank). The ratings reflect our expectation of ready support from the Government of Abu Dhabi (GoAD) and the UAE Federal Government, given the Bank’s ownership structure and an established track record of government support. Concurrently, we have reaffirmed the respective preliminary AAA(s)/Stable and AA1(s)/Stable ratings of the Senior and Subordinated Sukuk to be issued under ADIB Sukuk Company II Ltd’s proposed Islamic MTN Programme (Proposed Sukuk). ADIB Sukuk Company II is a trust-owned entity that acts as the Bank’s funding conduit. The issue ratings reflect ADIB’s credit strength as the obligor of the Proposed Sukuk.
Established under an Emiri decree, ADIB stands among the 10 largest Islamic banks globally (by assets) and possesses a commendable domestic retail franchise. The Bank is majority-owned by members of the Abu Dhabi ruling family (49%) and the Abu Dhabi Investment Council (8%), an investment arm of the GoAD. We believe support from the GoAD and the UAE government will remain forthcoming should the need arise, as evinced from a tier-1 capital injection and conversion of deposits into subordinated debt during the 2008 global financial crisis.
ADIB’s asset quality continued to worsen on the back of increased delinquencies among its corporate borrowers. The Bank’s gross impaired financing (GIF) ratio had risen to 5.5% as at end-September 2018 (end-December 2017: 5.0%; end-December 2016: 4.0%). While the Bank is vulnerable to lingering asset quality pressure, underscored by still-volatile oil prices and the soft property market, its strong pre-provision profits and financing loss reserves provide a sufficient buffer against any significant deterioration.
ADIB’s solid funding and liquidity profile is underpinned by an extensive distribution network. The Bank derived some 66% of its deposits from individuals and SMEs as at end-September 2018, which provides diversity and stability to its funding profile. ADIB’s liquidity coverage ratio is also deemed robust, averaging around 255% in 9M FY Dec 2018.
Subsequent to a AED1 billion rights issuance which was completed in October 2018, ADIB’s common equity tier-1 capital ratio will climb to 11.6%. While the Bank’s core capital ratios remain relatively weaker compared to peers’, shareholder support is expected to be readily available.
Liang Huey Jean, CFA
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Ratings on Abu Dhabi Islamic Bank PJSC