Fitch affirms National Bank of Abu Dhabi at 'AA-'; Outlook Stable

The Support Rating Floor is affirmed at 'AA-' (AA minus).

The Long- and Short-term IDRs and Support rating reflect the extremely high probability of support for NBAD from the UAE authorities in case of need, given the size of the government of Abu Dhabi's (rated 'AA') stake and the bank's leading position in the UAE banking sector. The Individual rating reflects a strong franchise, sound asset quality, well-controlled growth and satisfactory capital adequacy. It also reflects the risks inherent in the UAE operating environment and concentrations in loans and deposits.

NBAD's H107 results showed healthy revenue generation mainly driven by loan growth and fee income from core banking activities. Net interest revenue and net fee income each increased by 12% yoy. Growth in expenses (45% yoy) reflected branch network and distribution channel expansion, rising staff costs, and IT investment. NBAD's cost/income ratio nonetheless remained strong at 28% in H107.

Asset quality remains sound and unchanged as the bank continues to benefit from a buoyant domestic operating environment. The loan portfolio, however, is highly concentrated by borrower, but Fitch remains comfortable with the risk, as the largest exposures are primarily to government-related entities and large corporates. Funding diversification and maturity have improved following the bank's EMTN programme and the issuance of subordinated convertible notes. Liquidity remains satisfactory and is managed through large deposits with the UAE Central Bank, interbank placements and a portfolio of highly rated investment securities. Capitalisation is sound given current growth rates with a Fitch eligible capital/risk-weighted assets ratio of 14.9% at end-H107.

NBAD is currently the largest bank in the UAE with a domestic network of 73 branches supported by 184 ATMs, a 24-hour call centre and internet banking. It is 73%-owned by ADIC (the domestic investment arm of the Abu Dhabi government) and its remaining shares are held by UAE and foreign shareholders. The bank is listed on the Abu Dhabi Securities Market. NBAD is a full service bank, offering commercial, retail and government sector finance in addition to brokerage, investment banking, asset management and international banking. The bank is the most international of the UAE banks and has 30 branches across Egypt, the UK, USA, France, Oman, Kuwait, Bahrain and Sudan. NBAD has also established Islamic banking and real estate subsidiaries which are expected to commence operations in Q407 and Q108 respectively.