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Moodys June2018 PDF
Moodys June2018 PDF
CREDIT OPINION
1 October 2019
First Abu Dhabi Bank PJSC
Update to credit analysis
Update Summary
First Abu Dhabi Bank PJSC's (FAB) Aa3 long-term deposit rating incorporates a three-
notch uplift from the bank's a3 Baseline Credit Assessment (BCA). This uplift is based on
our assessment of a very high likelihood of support from the Government of United Arab
Emirates (Aa2 stable), in case of need.
RATINGS
Our assessment of a very high likelihood of government support for FAB in case of need
First Abu Dhabi Bank PJSC
Domicile Abu Dhabi, United Arab
reflects (1) the UAE government’s 37% ownership stake in FAB through Mubadala Investment
Emirates Company's (MIC) wholly owned subsidiaries - Abu Dhabi Investment Council Company PJSC
Long Term CRR Aa2 (ADIC, 33.4%) and Mamoura Diversified Global Holding PJSC (formerly know as Mubadala
Type LT Counterparty Risk
Rating - Fgn Curr Development Company, 3.7%), (2) the bank’s importance to the local financial system
Outlook Not Assigned (a 26.1% deposit market share as of June 2019), (3) the bank's designation as a Domestic
Long Term Debt Aa3 systematically important bank (D-SIB) by the UAE Central Bank, and (4) the UAE authorities'
Type Senior Unsecured - Fgn
Curr
track record of supporting banks.
Outlook Stable
Long Term Deposit Aa3
FAB's a3 BCA reflects its solid capitalisation, strong liquidity and healthy profitability,
Type LT Bank Deposits - Fgn supported by a dominant domestic franchise and its strong ties with the Government of
Curr Abu Dhabi (Aa2 stable). However, the bank’s high borrower concentrations, combined with
Outlook Stable
funding concentrations and its reliance on wholesale funding, moderate these strengths.
Please see the ratings section at the end of this report
for more information. The ratings and outlook shown Exhibit 1
reflect information as of the publication date. Rating Scorecard - Key financial ratios
First Abu Dhabi Bank (BCA: a3) Median a3-rated banks
18% 50%
16% 45%
Analyst Contacts 14% 40%
35%
Liquidity Factors
Solvency Factors
12%
Mik Kabeya +971.4.237.9590 30%
10%
AVP-Analyst 25%
8%
mik.kabeya@moodys.com 20%
6%
15%
Francesca Paolino +971.4.237.9568 4% 10%
Associate Analyst 2%
3.1% 13.9% 24.9% 44.5% 5%
1.6%
francesca.paolino@moodys.com 0% 0%
Asset Risk: Capital: Profitability: Funding Structure: Liquid Resources:
Constantinos +357.2569.3009 Problem Loans/ Tangible Common Net Income/ Market Funds/ Liquid Banking
Gross Loans Equity/Risk-Weighted Tangible Assets Tangible Banking Assets/Tangible
Kypreos Assets Assets Banking Assets
Senior Vice President Solvency Factors (LHS) Liquidity Factors (RHS)
constantinos.kypreos@moodys.com In Exhibit 1, all the ratios are as of June 2019. However, in the scorecard (Exhibit 3), the problem loan and profitability ratios are
Henry MacNevin +44.20.7772.1635 the weaker of the average three-year ratios and the latest ratios, the capital ratio is the latest reported figure, and the funding
structure and liquid asset ratios are the latest year-end figures.
Associate Managing Director
Source: Moody's Financial Metrics
henry.macnevin@moodys.com
Sean Marion +44.20.7772.1056
MD-Financial Institutions
sean.marion@moodys.com
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
Credit strengths
» Solid capitalisation, which reflects high earnings capacity.
» Strong ties with the Abu Dhabi government, combined with a dominant domestic franchise (a 27% domestic asset market share),
drive healthy profitability.
» Large government ownership supports our view of a very high likelihood of government support, if necessary.
Credit challenges
» High borrower concentrations and soft economy, which pose risks to the bank’s solid asset quality
Outlook
The stable rating outlook reflects our view that FAB’s solid capitalisation, healthy profitability and strong liquidity balance the risks
stemming from its high credit concentrations and relatively high reliance on wholesale funding.
Key indicators
Exhibit 2
First Abu Dhabi Bank PJSC (Consolidated Financials) [1]
06-192 12-182 12-172 12-163 12-153 CAGR/Avg.4
Total Assets (AED Million) 774,959.6 744,125.2 668,968.3 420,713.5 406,563.8 20.25
Total Assets (USD Million) 210,979.6 202,585.0 182,141.2 114,545.3 110,689.8 20.25
Tangible Common Equity (AED Million) 69,369.6 71,111.6 70,052.2 39,360.5 36,687.6 20.05
Tangible Common Equity (USD Million) 18,885.6 19,359.8 19,073.2 10,716.5 9,988.4 20.05
Problem Loans / Gross Loans (%) 3.1 3.1 4.3 3.1 3.0 3.36
Tangible Common Equity / Risk Weighted Assets (%) 13.9 14.4 14.4 14.5 13.3 14.17
Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 14.2 13.9 17.8 14.1 15.1 15.06
Net Interest Margin (%) 1.7 1.9 2.0 1.7 1.8 1.86
PPI / Average RWA (%) 2.9 2.8 2.3 2.3 2.4 2.57
Net Income / Tangible Assets (%) 1.6 1.6 1.4 1.2 1.2 1.46
Cost / Income Ratio (%) 27.3 28.1 30.6 38.1 39.4 32.76
Market Funds / Tangible Banking Assets (%) 24.9 21.6 23.4 26.0 28.7 24.96
Liquid Banking Assets / Tangible Banking Assets (%) 44.5 44.2 42.2 45.1 41.8 43.66
Gross Loans / Due to Customers (%) 81.8 78.4 86.7 81.7 90.7 83.96
[1] All figures and ratios are adjusted using Moody's standard adjustments. [2] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime. [3]
Simple average of periods presented for the latest accounting regime. [4] Simple average of Basel III periods presented.
Sources: Moody's Investors Service, company filings
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.
2 1 October 2019 First Abu Dhabi Bank PJSC: Update to credit analysis
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
Profile
First Abu Dhabi Bank PJSC (FAB) is an Abu Dhabi-based bank established in April 2017 following the merger of National Bank of Abu
Dhabi PJSC (established in 1968) and First Gulf Bank PJSC. FAB is the largest bank in the UAE and the second-largest bank in the Gulf
Cooperation Council (GCC), with total assets of $211 billion as of June 2019. FAB has a 27.4% market share in terms of assets, 23.5%
in terms of loans and 26.1% in terms of deposits. The Abu Dhabi government is FAB’s largest shareholder with a 37% stake through
Mubadala Investment Company's (MIC) wholly owned subsidiaries - Abu Dhabi Investment Council Company PJSC (ADIC, 33.4%) and
Mamoura Diversified Global Holding PJSC (formerly known as Mubadala Development Company, 3.7%).
FAB operates within four main business segments: Corporate and Investment Banking, Personal Banking Group, Head Office and
Subsidiaries. Corporate and Investment Banking represented 56% of its operating income in the first half of 2019, while Personal
Banking Group, Head Office and Subsidiaries were 37%, 6% and 1%, respectively.
FAB has global operations, with 73% of its assets in the UAE; 22% in Europe, the Americas, the Middle East and Africa; and 5% in Asia-
Pacific as of June 2019. The bank maintains a presence across five continents. In the UAE, the bank had 79 branches and cash offices
as of June 2019. For further information on the bank’s profile, please see the document First Abu Dhabi Bank PJSC's Issuer Profile,
published on 13 June 2018.
FAB’s solid asset quality primarily reflects the bank’s role as a primary banker for the Abu Dhabi government, as well as its strong ties
with Abu Dhabi-based government-related entities and corporates. This position has historically contributed to the bank’s relatively
low cost of risk, with loan-loss provisions as a percentage of gross loans standing at 44 basis points (bps) in H1 2019 (55 bps during the
full year 2018).
FAB’s borrower concentrations (to Abu Dhabi government-related institutions) and sector concentrations (to the construction and
real estate sectors) pose risks to its asset quality. The bank’s construction and real estate exposure represented 133% of its tangible
common equity (24% of gross loans) as of the end June 2019. However, the strong credit strength of the bank's large Abu Dhabi-
related borrowers significantly moderates this concentration risk.
As of June 2019, FAB’s problem loans/gross loans was 3.1% (under IFRS9 reporting, including Stage 3 loans) compared to 3.1% as of
December 2018 (under IFRS9 reporting, including Stage 3 loans) and 4.3% as of December 2017 (under IAS39 reporting, including
impaired loans and loans past due by more than 90 days, but not impaired). The bank's problem loans/gross loans remains lower than
the 5% local average, but it is higher than the 0.9% global median for its peers with a BCA of a3.
The improvement in FAB's problem loan ratio in 2018 primarily reflected the impact of IFRS9 adoption. In 2017, the higher level of
problem loans and the cost of risk compared with historical trends reflected higher delinquencies in the retail and small and medium-
sized enterprise segments, along with an alignment of underwriting policies following the merger completion. FAB's cost of risk stood at
72 bps in 2017, compared to 57 bps in 2016.
The ratio of FAB's loan-loss reserves to problem loans was 103% as of June 2019 (102% local average) and 103% as of December 2018,
compared to 86% as of December 2017. In addition, the balance of loans and advances that are not impaired but exhibit a significant
increase in credit risk — classified in the Stage 2 bucket under IFRS9 — was manageable at 4.7% of gross loans.
We assign an Asset Risk score of a3, two notches above the baa2 Macro-Adjusted score, to reflect the bank's stable cost of risk over
multiple credit cycles (see scorecard on page 7).
3 1 October 2019 First Abu Dhabi Bank PJSC: Update to credit analysis
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
As of June 2019, FAB reported tangible common equity/risk-weighted assets of 13.9% (14.4% as of year-end 2018), which is below
the 15.0% UAE average and the 15.4% global median for banks with an a3 BCA. In addition, the bank reported a Basel III Tier 1 ratio
of 15.8% and a total capital adequacy ratio of 16.9% as of June 2019. FAB's shareholders' equity (excluding Tier 1 capital notes)/total
assets was 11.6%.
We assign a Capital score of a2, one notch above the a3 Macro-Adjusted score, to reflect the bank's access to capital in case of need
(see scorecard on page 7).
Strong ties with the Abu Dhabi government, combined with a dominant domestic franchise, drive healthy profitability
We expect FAB’s profitability to remain healthy over the next 12-18 months. Solid corporate loan growth combined with further
operating cost synergies will support profitability, moderated by a modest increase in loan loss provisioning charges amid a soft
operating environment. The completion of the post-merger system integration in 2018 will improve the bank's ability to cross-sell
products and services to its customers, thereby supporting profitability.
We expect FAB’s strong ties with the Abu Dhabi government to continue to provide it with access to government-related business as
the primary banker to the government of Abu Dhabi and its related entities. FAB's established corporate franchise and large retail base
will also support its business with large groups and individuals. We also expect the bank's international operations (14% of operating
income in H1 2019), with a growing presence in Asia and the largest global network among UAE banks, to support its profitability.
FAB's net interest income will increase modestly as solid credit growth balances the impact of competition and the lower US Fed rates.
The bank's non-interest income will remain solid, primarily driven by foreign exchange and investments gains on the back of customer
flows. However, non-interest income tends to be more volatile than net interest income.
FAB's net interest margin declined to 1.7% in H1 2019 from 1.9% in full-year 2018, primarily reflecting the increase in funding cost
(2.0% in H1 2019 compared with 1.6% in 2018, which more than offset higher gross yields) and the dilutive impact of the bank's
management of excess liquidity. The bank prudently places this excess liquidity, given its short duration, with central banks to which it
has access to place deposits with. While the net impact of these deposits reflects positively on the net income, it does optically dilute
the net interest margins because of the significantly larger denominator.
FAB’s cost-to-income ratio improved further in H1 2019 to 27% from 28% in 2018 (31% in 2017). The bank's operating expenses
increased only modestly because cost savings from merger related synergies have outweighed the cost of investing in digital and
technology initiatives. Loan-loss provisions declined to 12% of pre-provision income in H1 2019, from 15% in the year-earlier period.
We expect FAB to gradually increase its granular and low-cost current and savings accounts (CASA) as it takes advantage of its
dominant post-merger franchise to do more cross-selling. We expect the bank to raise more CASA deposits from central banks,
multilateral banks and sovereign wealth funds as well as from corporate and retail clients. The bank's reliance on notice and time
deposits, which tend to be price sensitive, is high at 59% of total deposits (excluding certificates of deposits) as of the end of June
2019. However, the bank's low cost CASA as well as margin accounts are gradually increasing (a credit positive), accounting for 41% of
total deposits (excluding certificates of deposits) as of June 2019, from 38% as of December 2018.
4 1 October 2019 First Abu Dhabi Bank PJSC: Update to credit analysis
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
We expect FAB to maintain deep access to international money and capital markets, remaining one of the most active issuers in the
GCC region. The bank’s market issuances will continue to support its term structure. As of June 2019, the bank had outstanding $19.0
billion of commercial paper issuances and term borrowings.
We expect FAB to maintain a diversified funding base in terms of sources and currencies. The bank’s granular retail deposit base,
combined with its market funding raised in various currencies, forms and maturities, contribute to its funding diversification. FAB has
operations in key global financial markets, including Washington, Paris, London, Hong Kong and Singapore.
As of June 2019, FAB's market funds increased to 24.9% of tangible banking assets (21.6% as of year-end 2018), which compares
unfavourably with the 18% local average and the 15.8% global median for its peers with an a3 BCA. However, the bank's reliance on
market funding has decreased post the merger, standing at 24.9% as of the end of June 2019 compared with 28.7% as of year-end
2015.
We assign a Funding Structure score of baa2 to FAB, one notch above the baa3 Macro-Adjusted score, to reflect the term structure
benefit from the bank's wholesale funding (see scorecard on page 7).
We also expect FAB, unlike most banks in the GCC, to retain contingent funding access in the form of access to the discount windows
of the US Federal Reserve, the Central Bank of the UAE and the Hong Kong Monetary Authority. The bank maintains a large pool of
liquid assets. As of June 2019, FAB had $92 billion in liquid resources, including $45 billion in cash and balances with central banks,
$29 billion in non-trading investments at fair value through other comprehensive income, $12 billion in dues from banks and financial
institutions, and reverse repurchase agreements, as well as $6 billion in investments at fair value through profit and loss.
As of June 2019, the bank's liquid banking assets/tangible banking assets stood at 44.5% (44.2% as of year-end 2018), which is
materially higher than the 32.8% local average and 25.2% global median for its peers with an a3 BCA. As of June 2019, the bank's
liquidity coverage ratio was 137% (118% in 2018), above the regulatory minimum threshold of 100% for 2019. In addition, the bank's
net loan-to-deposit ratio remained strong at 79% as of the end of June 2019 (compared with 76% as of year-end 2018).
The most relevant social risks for banks arise from the way they interact with their customers. Social risks are particularly high in the
area of data security and customer privacy, which is partly mitigated by sizeable technology investments and banks’ long track record
of handling sensitive client data. Fines and reputational damage due to misconduct is a further social risk. Societal trends are also
relevant in a number of areas, such as shifting customer preferences towards digital banking services increasing information technology
cost, or socially driven policy agendas that may translate into regulation that affects banks’ revenue base. Overall, we consider banks to
face moderate social risks.
Corporate governance weaknesses can lead to a deterioration in a company’s credit quality, while governance strengths can benefit
its credit profile. Governance risks are largely internal rather than externally driven. Governance is highly relevant for FAB, as it is to all
banks. In the GCC, governments and government related issuers tend to have large footprint on the overall economy. Consequently,
they are often among the largest borrowers, depositors and shareholders in the largest banks. For FAB, we do not have any particular
governance concern. Nonetheless, corporate governance remains a key credit consideration and requires ongoing monitoring.
5 1 October 2019 First Abu Dhabi Bank PJSC: Update to credit analysis
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
6 1 October 2019 First Abu Dhabi Bank PJSC: Update to credit analysis
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
Factor Historic Initial Expected Assigned Score Key driver #1 Key driver #2
Ratio Score Trend
Solvency
Asset Risk
Problem Loans / Gross Loans 3.4% baa2 ←→ a3 Single name Long-run loss
concentration performance
Capital
Tangible Common Equity / Risk Weighted Assets 13.9% a3 ←→ a2 Expected trend Access to capital
(Basel III - transitional phase-in)
Profitability
Net Income / Tangible Assets 1.4% a3 ←→ a3 Expected trend Return on assets
Combined Solvency Score baa1 a3
Liquidity
Funding Structure
Market Funds / Tangible Banking Assets 21.6% baa3 ←→ baa2 Term structure Market funding quality
Liquid Resources
Liquid Banking Assets / Tangible Banking Assets 44.2% a2 ←→ a3 Expected trend
Combined Liquidity Score baa1 baa1
Financial Profile a3
Qualitative Adjustments Adjustment
Business Diversification 0
Opacity and Complexity 0
Corporate Behavior 0
Total Qualitative Adjustments 0
Sovereign or Affiliate constraint Aa2
Scorecard Calculated BCA range a2 - baa1
Assigned BCA a3
Affiliate Support notching 0
Adjusted BCA a3
Instrument Class Loss Given Additional Preliminary Rating Government Local Currency Foreign
Failure notching notching Assessment Support notching Rating Currency
Rating
Counterparty Risk Rating 1 0 a2 3 Aa2 Aa2
Counterparty Risk Assessment 1 0 a2 (cr) 3 Aa2(cr)
Deposits 0 0 a3 3 Aa3 Aa3
Senior unsecured bank debt 0 0 a3 3 Aa3
Non-cumulative bank preference shares -1 -2 baa3 0 Baa3 (hyb)
[1] Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information.
Source: Moody’s Investors Service
7 1 October 2019 First Abu Dhabi Bank PJSC: Update to credit analysis
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
Ratings
Exhibit 4
Category Moody's Rating
FIRST ABU DHABI BANK PJSC
Outlook Stable
Counterparty Risk Rating Aa2/P-1
Bank Deposits Aa3/P-1
Baseline Credit Assessment a3
Adjusted Baseline Credit Assessment a3
Counterparty Risk Assessment Aa2(cr)/P-1(cr)
Senior Unsecured Aa3
Pref. Stock Non-cumulative Baa3 (hyb)
Commercial Paper P-1
Other Short Term (P)P-1
FIRST ABU DHABI BANK USA N.V.
Outlook Stable
Issuer Rating Aa3
ST Issuer Rating P-1
FIRST ABU DHABI BANK USA N.V., WASHINGTON
Outlook Stable
Issuer Rating Aa3
ST Issuer Rating P-1
FIRST ABU DHABI BANK P.J.S.C., LONDON BRANCH
Deposit Note/CD Program (P)Aa3/P-1
FIRST ABU DHABI BANK, PARIS BRANCH
Deposit Note/CD Program -Dom Curr --/P-1
Commercial Paper -Dom Curr P-1
FIRST GULF BANK
Senior Unsecured Aa3
Commercial Paper (P)P-1
FAB SUKUK COMPANY LIMITED
Bkd Senior Unsecured Aa3
FIRST ABU DHABI BANK P.J.S.C., SING. BRANCH
Deposit Note/CD Program (P)Aa3/P-1
FIRST ABU DHABI BANK P.J.S.C., HK BRANCH
Deposit Note/CD Program (P)Aa3/P-1
Source: Moody's Investors Service
8 1 October 2019 First Abu Dhabi Bank PJSC: Update to credit analysis
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
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9 1 October 2019 First Abu Dhabi Bank PJSC: Update to credit analysis