Published on 10 Nov 2022.
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 view that FAB’s strong earnings generation and sturdy capital buffer will be sufficient to absorb further credit losses from weaker sectors of the economy. The ratings also incorporate our expectation that it will benefit from the Government of Abu Dhabi’s and the UAE federal government's extraordinary support in times of need. FAB is a domestic systemically important bank.
Given its privileged status as the preferred bank of the Abu Dhabi government, FAB enjoys a steady flow of lending opportunities and deposit placements from government and government-related entities. Sustained traction in cash management activities kept its mix of current- and savings-account deposits at a high proportion of total customer deposits (45% as at end-June 2022). FAB’s balance sheet features notable concentration, both on the asset and liability sides. The Group maintains ample liquidity to manage the associated risks. As at end-June 2022, FAB’s liquidity coverage ratio and net stable funding ratio were above the regulatory minimum of 100%.
FAB’s asset quality indicators have improved in line with the strong domestic economic rebound. The Group does not have any loans under pandemic-related relief schemes, while restructured and rescheduled loans was a small fraction of outstanding loans as at end-June 2022. Both gross impaired loan and annualised credit cost ratios were a lower 3.6% and 0.4%, respectively as at the same date (end-December 2021: 4.0% and 0.6%).
Return on risk-weighted assets (RoRWA) remained weaker than pre-pandemic levels. Excluding the large gain from the sale of a controlling stake in a subsidiary (AED3.1 bil), RoRWA was subdued at an annualised 1.8% in 1H FY Dec 2022 (3-year average prior to pandemic: 2.7%) due to weaker investment income. But net interest margin is expected to widen in line with future rate rises. Good control of operating costs and easing impairment charges should also provide some lift to earnings going forward. The Group raked in a profit before tax of AED13.2 bil and RoRWA of 2.4% in fiscal 2021 (+21% y-o-y), thanks to robust trading income and contained impairment charges.
Chan Yin Huei
(603) 3385 2498
Loh Kit Yoong
(603) 3385 2493
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Ratings on First Abu Dhabi Bank PJSC