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RAM Ratings affirms First Abu Dhabi Bank at AAA
Published on 08 Jan 2025.
RAM Ratings has affirmed 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 affirmation is premised on the Group’s dominant market position in the United Arab Emirates (UAE) and its sound credit metrics. FAB continues to be an important player in the investment banking and wholesale lending segments, facilitating transactions for the Government of Abu Dhabi (GoAD), related government entities and large UAE corporates. Its asset quality indicators and profitability remain resilient, supported by robust economic conditions in the UAE. FAB’s diverse earnings base, strong earnings generation capability and sturdy capital position provide a sufficient buffer to absorb credit losses. Sector, borrower and depositor concentration moderate these strengths.
Based on our rating criteria for systemic support, we view FAB’s status as a domestic systemically important bank and the sovereign’s close ties with and ownership of the Group as key factors in supporting our assessment of the Group receiving “highly likely” extraordinary support from the GoAD and the UAE federal government in times of need. However, no support uplift is factored into the ratings in view of FAB’s already strong standalone credit profile.
The Group’s asset quality indicators remain stable, its gross impaired loan ratio of 3.8% as at end-September 2024 still lower than the industry’s (end-June 2024: 4.8%). Stage 2 loans and rescheduled & restructured loans, the proportions of which have trended down since the pandemic, constituted a respective 2.6% and 2.1% of gross loans as at end-December 2023 (end-December 2020: 5.1% and 2.9%). Potential resolutions of impaired accounts along with the resilient UAE economy and likely interest rates cuts should lead to some improvement in asset quality indicators.
As the preferred bank of the GoAD, 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 share of current and savings account deposits to total customer deposits high (end-September 2024: 46%), although largely non-retail in nature. FAB’s balance sheet shows notable concentration – both on the asset and liability sides – the risks from which the Group has ample liquidity to manage. Liquidity coverage and net stable funding ratios were a respective 150% and 106% as at end-June 2024, above the 100% regulatory minimum.
Pre-tax profit rose 15% y-o-y to AED15.3 bil in 9M FY Dec 2024, translating into an annualised return on risk-weighted assets of 3.3% (9M FY Dec 2023: 3.0%). The increase was mainly propelled by strong business momentum and broader margins which more than offset heftier operating and impairment expenses. Non-interest income grew 30% y-o-y, representing a significant 39% of gross income for 9M FY Dec 2024. FAB’s earnings base is diversified but a notable portion of fees from market-sensitive activities (e.g., capital markets and trading) can introduce volatility to earnings. Ongoing efforts to grow more stable businesses like asset management and private banking/wealth management should help balance such swings.
FAB is well-capitalised. Despite reporting a larger risk-weighted asset base end-September 2024, mainly due to strong financing growth (+9% in 9M FY Dec 2024), the Group’s common equity tier-1 capital ratio was a higher 14.3% as at end-September 2024 (end-December 2023: 13.8%) on the back of healthy earnings accretion.
Analytical contacts
Jeremy Noel Paul
(603) 3385 2556
jeremynp@ram.com.my
Sophia Lee
(603) 3385 2619
sophia@ram.com.my
Media contact
Sakinah Ariffin
(603) 3385 2500
sakinah@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
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