Moody has downgaded ADCB by two notches... now see a limit down on Sunday...
Do Moody assess every month? There was one downgrading at December 09 end.
Press Release 30 December 2009:
Moody's downgrades Abu Dhabi Commercial Bank to A1/D+
Moody's Investors Service downgraded the long-term deposit ratings of Abu Dhabi Commercial Bank PJSC (ADCB) to A1 from Aa3 and its bank financial strength rating (BFSR) to D+ (mapping to a baseline credit assessment (BCA) of Ba1) from C- (mapping to a BCA of Baa2). The bank's senior unsecured debt rating was also downgraded to A1 from Aa3 and the subordinated debt rating to A2 from A1.
The debt rating downgrades also apply to ADCB Finance (Cayman) Limited, the second issuer under the bank's Global Medium-Term Note programme, which is directly and unconditionally guaranteed by ADCB. The outlook on all ratings is negative.
These downgrades conclude the review initiated on 15 December 2009, which was prompted by Moody's concern with regard to the resilience of ADCB's ratings to the potential continued deterioration in Dubai's operating environment, including the bank's exposure to the ongoing restructuring of Dubai World companies' debt. ADCB's asset quality, which had been weakening since the beginning of 2008 given its sub-prime exposures, continued to deteriorate in 2009, given in particular its high loan concentrations to defaulting Saudi corporates, and is now further challenged in light of Dubai World's pending restructuring.
ADCB has received a series of capital injections, namely: (i) Dhs4.78bn mandatory convertible bonds issued in April 2008, (ii) Dhs4.00bn Tier 1 capital notes issued to the local government of Abu Dhabi in February 2009, and (iii) Dhs6.67bn in Ministry of Finance deposits that ADCB has agreed to convert to Tier 2 capital. In Moody's view, these have boosted the bank's capital levels and had significantly helped prevent it suffering any earlier BFSR downgrades.
Moody's recognises that the ability and willingness of ADCB's parent Abu Dhabi Investment Council to support the bank and its plans for further growth remains strong. However, its standalone financial strength has weakened as a result of the rising pace of loan delinquencies and impairments of investments. In addition, Moody's expects the already weakening operating environment in Dubai and Dubai World's recent restructuring request to continue to weigh on the bank's loan quality and likely profitability in the foreseeable future. Moody's stress-testing exercise suggests that ADCB, given current assumptions and expectations, has an adequate capital cushion to weather potential losses. Nonetheless, its profitability is likely to continue to suffer from rising impairments and funding costs and lower loan growth.
Moody's also views ADCB's liquidity management as becoming a challenge given the concentrations in its deposit book and its generally higher dependence on external market funding sources than its UAE peers. In the absence of any further implicit support, i.e. from government related deposits, the bank's access to market funding is seen as particularly sensitive to developments related to the Dubai World group restructurings.
Moody's acknowledges that the bank's October 2009 issuance of $1.00bn (Dhs3.67bn) under its $7.50bn Global Medium Term Note programme provides sufficient proceeds to repay short-term maturities of existing debt in addition to the strong cash position that it has been building up over the past year. However, going forward, the rating agency expects the bank to face rising liquidity pressures, which could mean lower growth potential unless higher levels of deposits are generated.
The last rating action on ADCB was on 15 December 2009 when the bank's ratings were placed on review for possible downgrade.
The principal methodologies used in rating ADCB are the "Revised Methodology for Government Related Non-Bank Financial Institutions", and "Bank Financial Strength Rating: Revised Methodology", which can be found at www.moodys.com in the Rating Methodologies sub directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating the bank can also be found in the Rating Methodologies sub-directory on Moody's website.
Headquartered in Abu Dhabi, the UAE, ADCB reported total assets of Dhs158.63bn $43.1bn) as at 30 September 2009.
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