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Union National Bank ratings affirmed with Stable Outlooks by Capital Intelligence

July 1, 2014



Capital Intelligence (CI) has announced that it has maintained Union National Bank's (UNB) Financial Strength Rating (FSR) at 'A+' with its solid capital, good liquidity and profitability and improving asset quality metrics supporting the ratings.

Major constraining factors are high customer concentrations in loans and deposits, and moderately high credit risks in the country, although the operating environment is improving. A 'Stable' Outlook is appended to the FSR with the ongoing recovery of the local economy expected to lead to better asset quality metrics. UNB's Foreign Currency Long-Term and Short-Term Ratings are affirmed at 'A+' and 'A1' respectively, with a 'Stable' Outlook. The Bank's ownership, as well as overall good financials and management underpin the ratings. The Support Rating is maintained at '1', reflecting the extremely high likelihood that support would be forthcoming in case of need.

UNB's asset quality ratios have strengthened, reflecting the improved credit environment in the country. There were no major new impairments last year and impaired loans are gradually declining. However, rising real estate prices are expected to lead to increased settlements of secured impaired loans over the next few quarters. The Bank has built up its loan-loss reserves (LLRs) and key coverage ratios have all strengthened. UNB's strict credit underwriting standards, good profitability and sizeable free capital provide some safeguards. The Bank's capital adequacy ratio (CAR) continues to be maintained at a solid level despite the early repayment of subordinated debt in 2013. The Tier 1 ratio is also high and capital has increased at a steady pace over the years on account of good earnings and conservative dividend payments.

Liquidity ratios continue to be strong as they have for many years. After strengthening gradually since 2008, UNB's key loan-based liquidity ratios tightened slightly at end 2013, reflecting the uptick in credit growth and the reduction in medium/long-term funding after the early repayment of the Bank's subordinated debt. The Bank has a sizeable customer deposit base and capital provides additional funding support; its net loans to stable funds ratio continues to be better than the peer group average. Short-term interbank liabilities and medium- and long-term borrowings are low. There are some customer concentrations in the deposit base due to a high reliance on sovereign and public sector funding, but these deposits have proven to be very stable historically.

Profitability parameters continued to be strong. UNB's operating profitability is high due to wide margins and good cost control, and its return on average assets (ROAA) is better than the peer group average. The Bank performed well in 2013, with the good growth in non-interest income (NII) partly offset by higher operating costs. Reduced provisioning expenses also boosted net profit growth last year.

UNB continues to maintain its cautious outlook and a steady, single digit growth is projected for net loans this year. New branches are being opened to support the expansion of the retail deposit base and consumer credit. Lending opportunities in the country are rising, with government spending on infrastructure, power and other projects expected to rise.

With total assets of AED 86.8 billion at end 2013, UNB is one of the UAE's larger banks. It is 50 per cent owned by the government of Abu Dhabi. The Bank has a moderately large domestic branch network and offers a range of retail and corporate banking services. It provides Islamic banking facilities through a finance company. Overseas, the Bank is present in Egypt through a small, majority-owned subsidiary. It runs a representative office in Shanghai and also has branches in the Qatar Financial Centre and in Kuwait.


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Source: CPI Financial


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