x Abu Dhabi, UAETuesday 16 January 2018

Emirates NBD shares fall on ratings move

What's Down: Emirates NBD dropped the most in three weeks yesterday after Moody's Investors Service downgraded three of Dubai's lenders and placed a fourth on watch.

Shares of Emirates NBD dropped the most in three weeks yesterday after Moody's Investors Service downgraded three Dubai lenders and placed a fourth on credit watch, citing weak asset quality.

Emirates NBD shares, the emirate's biggest lender by assets, declined 1.04 per cent, the biggest drop since November 19, to Dh2.86 each. More than 500,000 shares were traded, compared to 68 million shares for the overall market.

"On the equity side, there hasn't been a huge amount of attention by domestic investors," said Julian Bruce, the Dubai-based head of institutional trading at EFG-Hermes Holding. "With current credit levels and non-performing loans, the downgrade shouldn't come as a massive surprise."

Last week, Moody's downgraded the long-term ratings of Emirates NBD and Commercial Bank of Dubai by one notch to Baa1 from A3. Mashreq was downgraded by one notch to Baa2 from Baa1. All three were given a negative outlook. The ratings agency also placed Dubai Islamic Bank, the biggest Sharia-compliant lender, under review for possible downgrade.

The downgrades come amid signs of recovery across the emirate's major revenue-generating sectors. In the past few years since the Dubai housing bubble burst, many banks have been forced to reschedule, restructure and accept haircuts on interest rates of debt lent to developers and investors during the construction boom.

"Despite an improvement in the overall operating environment in Dubai, especially in the core sectors of trade, retail, tourism and transport, Moody's believes that Dubai-based banks continue to face persistent asset quality pressures, which emerged at the start of the crisis four years ago," analysts at the ratings agency wrote in a report.

Yields on Emirates NBD's 10- year bond maturing in 2022 have risen by almost 15 basis points since last week to 3.6573 per cent. But fund managers are not convinced.

"It's a surprise for me, because I think things are improving, not worsening," said Fadi Al Said, the head of equities at ING Investment Management in Dubai. "I don't think they [Moody's] invented the wheel, it's been there for a while now. The economic improvement will put a floor on worsening in the bank's asset quality if anything."

Investors shrugged off the ratings cut, helping to boost Dubai's main benchmark higher.

"There is no impact. Looking at the market and how they responded, everything is up today," said Marwan Shurrab, the vice president and chief trader at the asset manager Gulfmena Investments in Dubai.