Moody’s affirms eight UAE banks' ratings and changes outlook to stable

Move driven by a recovery in operating conditions in the country, rating agency says

Moody's affirmed the long-term ratings of eight UAE banks. Delores Johnson / The National

Moody's Investors Service affirmed the long-term ratings of eight UAE banks and changed the outlook to stable from negative on Thursday, saying the move was driven by a recovery in operating conditions in the country.

Moody's said it has changed the outlook to stable from negative on the long-term deposit and issuer ratings of Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, Dubai Islamic Bank, HSBC Bank Middle East, MashreqBank, National Bank of Fujairah and The National Bank of Ras-Al-Khaimah.

The rating agency also affirmed the Baseline Credit Assessments (BCAs) and Adjusted BCAs of the eight banks.

“The primary driver for the BCA affirmations is Moody's view that the operating environment for the UAE banks is recovering from the effects of the pandemic. This is expected to support the banks' financial fundamentals, particularly profitability, capital and liquidity,” Moody’s said in a statement.

The rating affirmations also consider the Central Banks of the UAE’s support package relating to the coronavirus pandemic, which has supported the country's economy and consequently helped the banks mitigate loan quality deterioration, it said.

The rating agency expects the overall UAE real gross domestic product to grow by 2.8 per cent and 5.4 per cent during 2021 and 2022 respectively, from a 6.1 per cent decline during 2020.

“The UAE banks' profitability is expected to recover owing to a reduction in provisioning charges, with net income to tangible banking assets recovering to around 1 per cent during first six months of 2021 from 0.8 per cent for 2020,” Moody’s said.

It also expects that medium-term oil price range to $50-$70 a barrel will support both businesses and confidence in the operating environment, which will support the UAE banks' financial fundamentals, it said.