Fitch affirms Union National Bank at 'A+'; Outlook Stable

The Outlook remains Stable. The Support Rating Floor is affirmed at 'A+'.

The Long- and Short-term IDRs and Support rating reflect the extremely high probability of support for UNB from the UAE authorities in case of need, given the strong state ownership and the bank's important systemic role in the UAE's banking sector. The Individual rating reflects sound asset quality, well-controlled growth, satisfactory capital adequacy and improving business diversification. It also reflects the bank's relatively modest margins, adequate liquidity and concentrations in loans and deposits.

UNB's net income decreased 14% yoy in H107 due to the severe correction in regional stock markets resulting in a significant reduction in fees and commissions income. However, the bank's core banking activities have continued to be profitable at a stable margin (2.6%). Expansion into the retail sector should improve margins and further diversify income. Fitch considers liquidity to be adequate, although the declining loans/deposits ratio is a moderate concern. Fitch also highlights large concentrations in both assets and liabilities, although the risk is somewhat mitigated by these exposures being mainly to UAE government and public-related entities.

Asset quality remains sound with low levels of impaired loans (1.2% of total loans) and a comfortable coverage ratio of 125% as the bank continues to benefit from a buoyant domestic operating environment. Funding diversification and maturity have been improving through the use of a USD1bn syndicated loan and a USD3bn EMTN programme. Capitalisation is sound with a Fitch eligible capital ratio of 17% at end-H107.

Established in 1982, UNB has traditionally focused on corporate banking, particularly in government/public sector business and is now expanding into retail banking and other lines of business. UNB is the ninth-largest bank in the UAE by total assets, and is 40%-owned by the Abu Dhabi government, 10% by the Abu Dhabi Investment Council and 10% by the Dubai government. UNB operates through 47 branches across the UAE and more than 100 ATMs.

Subsidiaries include Union Brokerage Company LLC (99% stake) and Al Wifaq Finance Company (79.6%), which provides Shari'ah-compliant products. In September 2006, UNB acquired a majority stake (94.8%) in Alexandria Commercial and Maritime Bank, a commercial bank based in Egypt with nine branches.