Standard & Poor's Ratings Services said that it has lowered its long-term counterparty credit ratings on Emirates Bank International PJSC (EBI), National Bank of Dubai (NBD), and Mashreqbank (Mashreq) to 'BBB' from 'A-'. The short-term counterparty credit ratings were affirmed at 'A-2'. At the same time, we lowered our long- and short-term counterparty credit ratings on Dubai Islamic Bank (DIB) to 'BBB-/A-3' from 'BBB+/A-2'. The long- and short-term ratings on these four banks remain on CreditWatch with negative implications. Emirates NBD PJSC (not rated) recently merged the assets and liabilities of EBI and NBD.
"The rating actions reflect our decision to lower our assessments of the banks' respective stand-alone credit profiles (SACPs) because of their high exposure to Dubai-based government-related entities (GREs), which we downgraded earlier today," said Standard & Poor's credit analyst Emmanuel Volland.
"We now consider the likelihood of extraordinary support from the Dubai government as "low" for the corporate GREs since Dubai World (including Nakheel) announced it will seek a six-month standstill on its financings.
"However, we continue to expect extraordinary support to be made available from United Arab Emirates authorities, if needed, for Mashreq, EBI, NBD, and DIB given their high systemic importance," Mr. Volland said.
"Our lower assessments of the banks' SACPs hinge on our view that their respective financial profiles, including their asset quality and capitalization, are weaker than we had previously assessed due to their large exposures to the Dubai GREs. Of the four, we believe that Mashreq is the least exposed," Mr. Volland added.
The rating actions also take into account the deteriorated economic environment, including the fall of real estate prices, which have started to weigh on the banks' financial profiles in our view. Their respective asset quality indicators have generally weakened over recent quarters.
"The negative implications of the CreditWatch placements partly reflect remaining uncertainties about the full impact of Dubai World's requested standstill on the banks' asset quality, financial performance, and capitalization," Mr. Volland said.
"We will also assess the impact of the future economic performance of Dubai on the banks and future access to financing for these entities. The CreditWatch placement also reflects our continuing review of the stand-alone credit quality of the Dubai GREs, which could lead to further downgrades. We plan to resolve these CreditWatch placements within the next three months."
