UAE: Abu Dhabi Commercial Bank’s Financial Strength Rating Affirmed – Foreign Currency Rating Downgraded

Global Arab Network  – Capital Intelligence has announced that it has affirmed Abu Dhabi Commercial Bank’s (ADCB) Financial Strength Rating at A- with the Bank’s large domestic franchise,

Improved operating profitability and capital adequacy being major factors supporting the rating, Global Arab Network reports according to a press statement.  Despite the Support rating of ‘1’, which reflects the extremely high likelihood of official support from the government of Abu Dhabi in case of need, the Bank’s Foreign Currency (FC)?

Long-term rating is adjusted downwards to ‘A+’ from ‘AA-‘ (a two-notch difference between FSR and FC as per CI methodology) to reflect continuing high credit risks in the UAE and their likely impact on the Bank’s weak asset quality and tight liquidity.  The FC Short-term rating is maintained at ‘A1’.  A ‘Stable Outlook has been assigned to all the ratings on the assumption that the remainder of 2011 and H1 2012 will see improvements in both asset quality and liquidity.

ADCB is a major retail and corporate bank in the UAE with strong customer franchises and a comprehensive range of products and services that generate multiple revenue streams.  The Bank’s earnings have been impacted by high impairment provision charges in recent years; however, operating profitability remained reasonably high, buoyed by good net interest and non-interest income.

The 2010 impairment provision charge included provisions on the Bank’s sizeable exposure to a Dubai government-related entity, which was classified as impaired and was subsequently restructured.

The Bank’s return on average assets (ROAA) strengthened in the first nine months of 2011 owing to lower impairment charges compared to the corresponding period of the previous year as well as extraordinary income arising from the sale of shares in an overseas associate.  The operating profitability ratio also improved on the back of higher net interest.

The Bank’s capital adequacy ratio (CAR) strengthened in 2011.  This was partly due to the sale of the Bank’s stake in an overseas associate, which led to substantially lower deductions from regulatory capital for the purposes of calculating the CAR.  The Bank has received substantial increases in capital from the government of Abu Dhabi and the federal government in recent years.

Despite improvements, ADCB’s liquidity remains tight. While the Bank’s access to Abu Dhabi government funds is a mitigating factor here, given the uncertain global economic outlook, a higher level of liquid assets would provide more comfort.

The ratio of loans to customer deposits remains high, although the customer deposit base has grown substantially in recent years primarily due to the aggressive marketing of Islamic savings products.  The Bank also regularly raises medium/long-term resources from regional and international markets, but any dependence on such funding could be a point of vulnerability in current market conditions.

ADCB was created in 1985 by the government of Abu Dhabi through the merger of three distressed retail commercial banks.  The government, through the Abu Dhabi Investment Council, owns 58% of the Bank.  ADCB is the third largest bank in the country with total assets of AED169 billion at end 2010.

The Bank has a moderately large network of branches spread across the emirates.  ADCB offers a comprehensive range of retail and corporate banking products and services and overseas operations are limited to two branches in India.

http://www.english.globalarabnetwork.com/2012010912337/Finance/abu-dhabi-commercial-banks-financial-strength-rating-is-affirmed-but-the-foreign-currency-long-ter.html

Strong appetite for Islamic finance products in Oman

MUSCAT: Omani consumers have expressed a strong appetite for Islamic finance with a rapid take-up of banking products expected within the first 12 months of being launched.

These are key findings published yesterday from Oman’s first independent market study, entitled ‘Islamic Finance in Oman – Sizing the retail market’.

The report was independently commissioned and published by IFAAS (Islamic Finance Advisory & Assurance Services), the international Islamic Finance consultancy.

The report, analyses the retail market for Islamic finance in Oman across all sectors of the financial market, including banking, finance and insurance. It examines the current behaviour of consumers and measures future market trends to gauge the real potential of Islamic finance in Oman.

The report fulfils the demand for empirical data that new and existing players need to develop their business plans using robust scientific information.

Key findings from the report reveal: About 85 per cent of consumers in Oman expressed an interest in Islamic finance products, of which 59 per cent were very interested and 26 per cent quite interested.

Nearly 70 per cent of consumers in Oman anticipate opening an Islamic savings account in the next 12 months with half (35 per cent) expecting to do so within three months of one becoming available.

About 77 per cent of consumers in Oman expect to take out Islamic financing (loans) within the next 1-2 years.

‘Islamic Finance in Oman – Sizing the retail market’ also found that currently 86 per cent of consumers in Oman have some kind of conventional banking products , of which 60 per cent declared to be ‘bothered’ about using products that are based on Riba (interest).

Strong potential

This further re-enforces the strong potential for retail Islamic finance in Oman, inferring that a high proportion of consumers engaging in financial activities are likely to switch to Shariah compliant alternatives when they become available. The report summarises its findings with several conclusions including:

The introduction of Islamic Finance in Oman is anticipated to change the country’s financial landscape over the next decade with far reaching positive effects for the overall economy.

The retail market will see a shift from conventional banking and a change in the savings behaviour leading to sizeable ‘new’ money.

Commenting on the findings, Farrukh Raza, managing director, IFAAS said, “The findings from ‘Islamic Finance in Oman – Sizing the retail market’ demonstrate that the growth from Islamic Finance has the potential to be bigger than currently expected.

The major challenge for decision makers is to ensure that their early critical decisions are based on accurate market information to ensure long term success. IFAAS’ report and findings have proved invaluable for many institutions considering their next move.

The introduction of Islamic Finance in Oman is anticipated to change the country’s financial landscape over the next decade with far reaching positive effects for the overall economy.
The retail market will see a shift from conventional banking and a change in the savings behaviour leading to sizeable ‘new’ money.

Commenting on the findings, Farrukh Raza, managing director, IFAAS said, “The findings from ‘Islamic Finance in Oman – Sizing the retail market’ demonstrate that the growth from Islamic Finance has the potential to be bigger than currently expected.

The major challenge for decision makers is to ensure that their early critical decisions are based on accurate market information to ensure long term success. IFAAS’ report and findings have proved invaluable for many institutions considering their next move.

http://www.timesofoman.com/innercat.asp?cat=&detail=53146&sec=news