x Abu Dhabi, UAEWednesday 26 July 2017

UAE banks revised downward

In response to falling stock and property prices and a shortage of credit, ratings agency Moody's downgrades ADCB, FGB and DB.

Moody's said its decision was based on evidence that the global financial crisis could lead to more instability in the stock markets and property sector.
Moody's said its decision was based on evidence that the global financial crisis could lead to more instability in the stock markets and property sector.

Moody's has revised their outlook downward on three local banks in response to falling stock and property prices and a shortage of credit, the ratings agency said on Tuesday. Abu Dhabi Commercial Bank (ADCB) and First Gulf Bank (FGB), the third and fifth largest banks in the UAE respectively, both had their rating outlooks revised from "stable" to negative". Dubai Bank (DB), a privately-held Islamic bank, was revised from "positive" to "stable".

Moody's said its decision was based on evidence that the global financial crisis could lead to more instability in the stock markets and property sector. This could negatively affect the asset quality and profitability of local banks when coupled with a shortage of international funding. The announcement followed a ratings downgrade from Fitch Ratings on Global Investment House, which was lowered to a rating one notch above default following news that it was unable to meet a loan that came due on Monday.

"Moody's recognises that the current asset quality and profitability levels reported by all UAE banks ? may be negatively affected going forward," wrote John Tofarides, a ratings analyst at Moody's. "Looking ahead, the operating environment in the UAE is faced with increasing challenges emanating from the volatility in both the equity and real estate markets." Moody's said there was increasing evidence that the demand for properties in the UAE had dwindled significantly due to negative sentiment, alack of affordability, and poor systemic liquidity. "Moody's expects these trends to continue," Moody's said.

ADCB's stock has declined 55.04 per cent this year, to Dh2.4 a share, while FGB's stock has fallen 53.9 per cent, to Dh9.3 a share. tpantin@thenational.ae