Moody's Investors Service has upgraded the foreign currency deposit ratings of Mashreqbank to A3/Prime-2 from Baa3/Prime-3 and its financial strength rating (FSR) to C- from D+. The Outlook for all ratings is Stable.
Moody's explains that the FSR upgrade reflects Mashreqbank's growing franchise within the United Arab Emirates (UAE) and its improving financial fundamentals. The largest privately owned bank and the fifth-largest bank in terms of assets overall, Mashreqbank has built a strong franchise in retail and commercial banking -- servicing primarily the private sector companies, while trade finance remains a strong niche, with the bank claiming the largest market share of private sector trade finance.
Recognized as an innovative and dynamic retail bank in the UAE, Mashreqbank has built a strong brand name in retail banking; one in every two households in the country banks with Mashreqbank. Although its focus on private sector businesses and retail banking may suggest a higher credit risk profile, having invested significantly to build up its risk management systems, Mashreqbank is, in Moody's view, well positioned to manage these risks, as evidenced by its good track record.
A drag on its financial performance during the last years, Mashreqbank's international operations are being rationalized and placed on a sounder footing, with loss-making operations in a number of countries being closed or sold. Future international activities will focus on Qatar for retail banking where the bank has opened the third branch, and on the Gulf Cooperation Council (GCC) for commercial banking.
The higher FSR also takes into account the bank's good financial fundamentals, underpinned by a strong increasing earning power, satisfactory liquidity, improving asset quality and adequate capital position, adds Moody's. The upgrade in the foreign currency deposit ratings to A3/Prime-2 from Baa3/Prime-3, comes as a result of the bank's higher FSR and Moody's imputing a stronger element of external support from the UAE authorities in the event of need.
Moody's believes that Mashreqbank's growing importance and significance to the financial system in the UAE and in particular to the economy of Dubai justifies imputing a higher level of external support.
However, as a privately owned bank operating in an over-banked market dominated by emirate-owned banks, in Moody's view, Mashreqbank may not have the same priority for timely support from the authorities in case of need as would the emirate-owned banks. Therefore, while the rating agency believes that support from the authorities in the event of crisis is highly likely, the bank's deposit ratings are placed below the A2 country ceiling for foreign currency deposit ratings, due to timing issues. — (menareport.com)
Mashreqbank is headquartered in Dubai and at the end of 2002 had total assets of $23.7 billion ($6.4 billion). — (menareport.com)
© 2003 Mena Report (www.menareport.com)
