Published on 16 Nov 2021.
RAM Ratings has reaffirmed First Abu Dhabi Bank P.J.S.C.’s (FAB or the Group) AAA/Stable/P1 financial institution ratings, as well as the respective AAA/Stable and AA1/Stable ratings of the senior and subordinated notes under the Group’s RM3 billion Islamic/Conventional Medium-Term Note Programme (2010/2030). The rating action reflects our expectation that extraordinary support from the Government of Abu Dhabi and the United Arab Emirates (UAE) federal government will be readily extended in times of need. FAB’s systemic importance to the UAE underpins this expectation – it holds a dominant share of total deposits in the domestic banking system (close to a third as at end-June 2021).
Given FAB’s privileged status as the preferred bank of the Abu Dhabi government, it enjoys a steady flow of lending opportunities and deposit placements from the government and government-related entities (GREs). Consequently, FAB’s loans and deposits are relatively concentrated. FAB’s liquidity coverage and net stable funding ratios were kept above the minimum of 100% as at end-September 2021, despite the central bank’s temporary relaxation for these indicators.
The Group’s headline gross impaired loan ratio has weakened during the pandemic (3.9% as at end-September 2021) but stayed notably lower than industry average. The Group’s total exposure to borrowers enrolled under central bank’s Targeted Economic Support Scheme (TESS) has reduced by more than half to 4.6% of gross loans (end-June 2020: 12.7%). Both the proportions of Stage 2 loans as well as rescheduled and restructured loans to total gross loans, had also not materially increased. In general, asset quality indicators appear to be stabilising. In 9M FY Dec 2021, the Group reported a lower annualised loan credit cost ratio of 0.6% (fiscal 2020: 0.7%). However, its large borrower and sector concentrations in real estate and construction pose some downside risks, particularly if economic recovery stalls. Furthermore, impaired loans may rise once support measures end.
We continue to derive comfort from the Group’s sound loss absorption capacity – a key rating strength of FAB. FAB is well-capitalised with a common equity tier-1 capital ratio of 13.0% as at end-September 2021. In 9M FY Dec 2021, FAB registered a profit before tax of AED9.7 bil, a 28% y-o-y improvement on the back of strong investment gains and a 18% reduction in net impairment charges on loans. Operating costs were well contained. Higher income from trading gains and portfolio returns cushioned the decline in net interest income. Given its strong relationship with the government and GRE clients, FAB is also in a good position to benefit from increased corporate finance activities among this client base when economic activities regain momentum.
Chan Yin Huei
(603) 3385 2498
Loh Kit Yoong
(603) 3385 2493
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Ratings on First Abu Dhabi Bank PJSC