Fitch affirms Commercial Bank of Dubai at 'A'; Outlook Stable

CBD's IDRs and Support rating reflect the extremely high probability that the bank would receive financial support, if needed, given the government of Dubai's 20% ownership and the strong history of support provided by the UAE authorities to local banks. The Individual rating reflects CBD's consistent profitability, and satisfactory asset quality and capitalisation. It also reflects its rapid loan growth, significant exposure to regional equity markets, and reliance on the domestic market.

Operating profit increased a healthy 56% in 2007, driven by very rapid loan growth (2007: 64%) with broadly stable margins, cost efficiency and asset quality, though impairment charges have grown from low levels. Relatively wide margins partly reflect the bank's substantial local SME franchise. However, performance can be volatile, reflecting significant exposure to potentially volatile regional equity markets.

Impaired loans were 1.4% of gross loans at end-2007 with adequate impairment reserves coverage of 94%; coverage is low by regional standards as most of the bank's peers maintain coverage ratios of over 100%. Asset quality ratios benefit from rapid loan growth, and the latter is a concern. Liquidity is adequate but appears to have somewhat weakened as wholesale funding has grown and liquid assets have fallen as a share of the balance sheet. Funding is mostly from customer deposits, which constituted 82% of end-2007 non-equity funding. Capital ratios have declined slightly, following rapid loan growth, but remain satisfactory given the bank's risk profile, with a Fitch eligible capital ratio of 16.8% at end-2007.

Established in 1969, CBD's main focus is medium-sized UAE corporates and SMEs. It also offers syndicated lending, project finance, and some retail banking services. It had around 2.5% of UAE banking system assets at end-2007. The largest shareholder is the government of Dubai (20%); the remaining shares are held widely. CBD operates through 24 branches and 125 ATMs in the UAE.