Ratings On Four Dubai-Based Banks Placed On CreditWatch Negative On Dubai World Restructuring Announcement

Published November 29th, 2009 - 11:45 GMT

The announcement that Dubai World (including its subsidiary Nakheel) will seek a six-month standstill agreement on its financing raises concerns for Dubai-based banks' financial profiles in light of their high exposure to this group.
We are placing on CreditWatch with negative implications the 'A-' long-term rating on Emirates Bank International PJSC, National Bank of Dubai, and Mashreqbank, as well as the 'BBB+/A-2' ratings on Dubai Islamic Bank.
We are affirming the 'A-2' short-term ratings on Emirates Bank International, National Bank of Dubai, and Mashreqbank.
PARIS (Standard & Poor's) Nov. 26, 2009--Standard & Poor's Ratings Services said today that it has placed on CreditWatch with negative implications its 'A-' long-term counterparty credit ratings on Emirates Bank International (EBI), National Bank of Dubai (NBD), and Mashreqbank (Mashreq) and its 'BBB+/A-2' ratings on Dubai Islamic Bank (DIB). At the same time, Standard & Poor's has affirmed its 'A-2' short-term counterparty credit ratings on EBI, NBD, and Mashreq.

The CreditWatch placement follows yesterday's announcement by the government of Dubai of a restructuring of Dubai World (not rated), including a requested standstill on all financings to Dubai World, including its subsidiary Nakheel (not rated).

"The rating actions reflect the large exposure these banks have to Dubai World and Nakheel, and more generally to Dubai-based government related entities, and the risks that the standstill agreement would pose to these banks," said Standard & Poor's credit analyst Mohamed Damak.

"This comes at a time when the deteriorated economic environment, including the fall of real estate prices, has already started to weigh on the financial profile of these banks," said Mr. Damak.

Overall, these banks' asset quality indicators have declined over the past 12 months. We expect asset quality to continue to deteriorate in the coming quarters and this trend could be exacerbated by the direct and indirect impact of a debt restructuring by Dubai World, which represents a major pillar of the Dubai economy. Asset quality indicators are also expected to worsen as some of these banks have exposure to Ahmad Hamad Al Gossaibi Brothers and Saad Group, which defaulted on their obligations earlier in 2009.

The ratings on these fours banks are higher than their stand-alone credit profiles (SACP) and factor in our expectation of some exceptional government support in case of need. This reflects the high systemic importance of these banks and, in our view, the interventionist nature of the authorities toward their banking sector. The long-term ratings on EBI, NBD, and DIB are two notches higher than their SACPs, reflecting their high systemic importance and ownership structure dominated by the government of Dubai. Given yesterday's announcement, we will revisit these conclusions to reassess our view of the propensity and capacity of the government of Dubai to support these banks. The rating on Mashreq, which is privately-owned, is one notch higher than its SACP given its high systemic importance in the UAE.

We will resolve the CreditWatch placement on these four banks upon a review of the full details and impact of the Dubai World and Nakheel restructuring announcement. We expect this to be complete within the next three months. We do not anticipate lowering the ratings on these four banks by more than two notches.


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