Abu Dhabi Islamic Bank rated 'A-' by Fitch rating agency

Fitch, the international rating agency, has assigned ratings of ‘A–’ (A minus) Long-Term, ‘F2’ Short-term and ‘2’ Support to Abu Dhabi Islamic Bank (ADIB). The Long-term rating Outlook is Stable.

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By  Massoud Derhally Published  October 30, 2001

Fitch, the international rating agency, has assigned ratings of ‘A–’ (A minus) Long-Term, ‘F2’ Short-term and ‘2’ Support to Abu Dhabi Islamic Bank (ADIB). The Long-term rating Outlook is Stable.

ADIB was established in 1997 by Emiri Decree and is the only new banking licence granted in the UAE since the 1980s. It is 29% owned by prominent founding shareholders and 10% by Abu Dhabi Investment Authority, the Abu Dhabi government's investment arm. ADIB is an Islamic bank but competes with conventional banks in retail and corporate markets. It provides a broad range of products that comply with Islamic Shari’a as viable alternatives to conventional banking products. Its small branch network is supported by up to date non-physical distribution channels such as ATMs, telephone banking, SMS and soon by Internet banking.

Fitch’s ratings for ADIB reflect the bank's shareholding structure, which provides a strong likelihood of potential support, together with its short but successful track record and the expectation that performance will continue to improve in line with management’s projections. The ratings also reflect a reliance on the domestic economy and the fact that the current strong capital and liquidity position will be eroded over time as the bank continues to grow and mature. Profitability ratios are currently behind ADIB's longer established domestic peers reflecting the slow build up of commercial assets and a correspondingly high proportion of low risk, but low yielding, assets in its balance sheet. A major challenge for management is to manage this transformation and improve returns, as well as diversifying revenue streams. A high but declining proportion (60% as at June 2001) of assets in international Murabaha transactions (the Islamic equivalent of interbank placements), which can be liquidated at short notice, produces a highly liquid balance sheet, and the bank also has access to government and central bank deposits in case of need. ADIB has sophisticated risk management capabilities for a bank of its size and track record, reflecting management's philosophy of building from a sound and conservative base.

The agency’s Support rating reflects its opinion that ADIB's strong and influential shareholders should ensure that support for the bank would be provided in case of need.

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