Moody's assigns A2/P-1/D+ ratings to Commercial Bank of Dubai (UAE)

The outlook for the ratings is stable.
According to Moody's, CBD's D+ BFSR -- that maps to a Baa3 Baseline Credit Assessment -- reflects the bank's small, but well-established, domestic franchise and its strong overall financial metrics, in particular profitability, capitalisation and operational efficiency.

However, Moody's explains that the rating also takes into account the bank's modest market shares, its lack of business and geographical diversification -- given its predominant corporate banking profile and the concentration of its business activities in the United Arab Emirates ("UAE") -- as well as its significant, though declining, single-name borrower concentrations.

In terms of assets, CBD is the 13th largest of the 52 banks operating in the UAE, with a market share of around 2.5% as of March 2008.

Its main business activity is corporate banking, with a primary focus on midsized commercial groups.

Moody's recognises that, despite its small size, the bank has developed a good corporate client base and nurtured strong relationships with a number of key UAE corporates and wealthy
family business groups.

Moody's also welcomes the bank's ongoing efforts to expand its consumer based activities, as this would lead to greater business diversification.

In that regard, CBD has been enhancing its
distribution capacity and product range and is in the course of establishing an Islamic banking arm to accommodate the growing market demand for Sharia'-compliant products.

Moody's says that it considers the bank's liquidity and risk management practices as adequate, but notes that these remain to some extent over-shadowed by its significant, though improving, funding and lending concentrations.

Looking at the bank's financial metrics, Moody's notes that CBD enjoys good profitability, supported by high operational efficiency, as well as wide interest margins, reflecting a low-cost of funding.

Its liquidity profile, despite tightening, is overall satisfactory while its capitalisation, in spite of the bank's significant business
expansion, remains strong.

Furthermore, the bank's asset quality continues to improve with a declining nonperforming loans ratio, largely driven by a robust credit growth and an enhanced risk management approach.

Moody's cautions, however, that the rapid credit expansion witnessed in recent years suggests that CBD's loan book has not yet seasoned and its credit quality will truly be tested during a macroeconomic slowdown, which could be triggered among others, by a severe real-estate correction or geopolitical instability.

CBD's A2/Prime-1 deposit ratings stand four-notches higher than the level of the bank's standalone financial strength -- represented by its Baseline Credit Assessment of Baa3, which is mapped from the D+ BFSR.

This four-notch uplift is based on Moody's assessment of a very high probability of systemic support for CBD in case of need, in recognition of (i) the bank's 20% ownership by the government of Dubai, (ii) its importance to the Dubai emirate and its corporate landscape, and (iii) the evidenced systemic support provided to troubled UAE banks in the past.

All ratings assigned to CBD carry a stable outlook. Going forward, CBD's ratings could benefit from (i) significant expansion and further diversification of its business franchise in the increasingly competitive
environment, provided its risk profile remains acceptable, and/or (ii) further reductions in its funding and lending concentration.

Conversely, the ratings could be downgraded in the event of: (i) a tightening liquidity profile, (ii) a deteriorating profitability and asset quality.

Founded in 1969, Commercial Bank of Dubai is headquartered in Dubai and had total assets of Dhs33.4bn ($9bn) as of March 2008.