Fitch affirms Tamweel at 'A'; outlook stable

Tamweel's IDRs and Support Rating reflect Fitch's view that there is an extremely high probability that it would receive financial support, in case of need.

This is based on the combined indirect 38% stake held by the government and ruler of Dubai in Tamweel, its leading share of the UAE mortgage market, the importance of Islamic financial institutions in the UAE, and the authorities' strong past history of support for local financial institutions.

Currently, there is no downside risk to the IDRs as the Long-term IDR is at the Support Rating Floor.

Tamweel's Individual Rating reflects Fitch's concerns about the company's reliance on wholesale funding in worsening market conditions.

Furthermore, Fitch considers the company's liquidity as weak given long-term lending, concentrated funding and modest liquid assets.

As an investment company regulated by the Central Bank of the UAE (CBUAE), Tamweel is restricted from raising retail deposits.

Its funding is reliant on the local interbank market, where the global credit crisis has resulted in somewhat weakened liquidity.

This has led the CBUAE to establish a Dhs50bn liquidity facility to ease pressure on liquidity in the local banking system.

However, as an investment company, Tamweel does not have access to this facility.

Negative Individual Rating pressure would arise if there are no material improvements in its funding profile.

Any improvements would most likely occur through potential regulatory changes allowing access to the CBUAE's liquidity facility or access to retail deposits, or from further medium term funding.

The Individual rating factors in Tamweel's reliance on the UAE mortgage market, which is untested in a downturn, and reduced operational flexibility following a severe fall in its share price of over 60% in the last three months; the latter was exacerbated by certain corporate governance issues which it is aiming to address.

The Individual rating also reflects Tamweel's good local franchise in the local residential mortgages market, sound profitability, strong asset quality and satisfactory capitalisation.

It completed the first UAE true-sale RMBS transaction of $210m in Q307 but further securitisations are not expected in current adverse market conditions.

The maturity profile of funding was strengthened by the January 2008 issuance of USD300m exchangeable sukuk and the July 2008 issuance of AED1.1bn sukuk.

Tamweel announced on 5 October 2008 that it was in merger discussions with Amlak Finance (Amlak), a major UAE residential mortgage company.

Fitch believes Amlak's international activities would complement Tamweel's leading local market share and there may be some scope for cost synergies from replicated back office functions.

However, this transaction would face execution risks and could increase Tamweel's exposure to some potentially riskier markets.

Established in its current form in 2004, Tamweel is a Shari'ah compliant financial institution operating through four branches in the UAE.

Amlak was established in 2000 and operates in the UAE as well as Egypt, Jordan, Qatar, Saudi Arabia and Syria.