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Invest Bank - ratings affirmed by Capital Intelligence

July 23, 2014



Capital Intelligence (CI) has announced that it has affirmed the Financial Strength Rating (FSR) of UAE'sInvest Bank (IB) at 'BBB' with its solid capital adequacy and good profitability being major supporting factors.

High non-performing loans (NPLs), customer concentrations in loans and deposits and a continuing elevated level of credit risk in an otherwise improving operating environment are constraining factors. The Foreign Currency (FC) ratings are maintained at 'BBB' Long-Term and 'A3' Short-Term. The FC ratings are underpinned by the support of the federal government and the Bank's moderately good financials overall. The Support Rating is maintained at '3', indicating a high likelihood of support from the government in case of need. A 'Stable' Outlook is assigned to all the ratings.

IB is a corporate banking institution and one of the smallest banks in the UAE. The Bank has for years provided plain vanilla banking products to small and medium-sized entities in the country. New growth strategies were formulated this year for a stronger and steadier asset growth from 2015 onwards. This would be on the back of new products and services, a major overhaul of HR practices and a substantial strengthening of credit processes. IB's loan portfolio accounts for a sizeable portion of its balance sheet this has contributed to the Bank's wide net interest margins over the years.

The Bank's NPL ratio rose last year due to the continuing problems faced by some corporate borrowers. However, provisions and capital substantially cover NPLs and the Bank's strong profitability adds a further buffer. The Bank has a low level of renegotiated loans and almost two-thirds of its net loans have remaining maturities of less than a year. The loan portfolio is spread over a large number of sectors, but concentration levels are rising in the construction sector, which has grown substantially in recent years. IB's customer concentration is also high owing to sizeable exposures to the government. The Bank's overall customer profile is unchanged small and medium-sized business entities operating in the principal non-oil sectors of the country continue to be its mainstay.

The Bank maintained its capital adequacy ratio at a solid level at end 2013, although the ratio declined from the previous year-end owing to the repayment of subordinated debt to the Ministry of Finance ahead of its 2016 maturity. These funds had been received in 2008 as part of the government's liquidity and capital support programme for the banking sector at that time. IB has historically maintained its capital at a high level.

The Bank has a large customer deposit base, which has been growing at a good pace, and its interbank liabilities are very low. IB continues to have money market lines from local and foreign banks, which have been used very sparingly so far. Its large capital base also provides substantial funding support. The Bank has low maturity gaps reflecting the high level of short-term loans on its balance sheet.

IB's net loans to customer deposits ratio had continued to improve in 2013 and its net loans to stable funds ratio was at a good level despite tightening slightly owing to the repayment of subordinated debt. The slow growth of customer deposits over Q1 2014 led to a tightening of all loan-based liquidity ratios at the end of the quarter; but these are still at acceptable levels. Liquid and quasi-liquid assets are at satisfactory levels.

The Bank's wide interest spreads, good non-interest income base and low operating costs underpin its strong operating profitability and ROAA. However, both ratios fell in 2013 owing to a narrower net interest margin and higher provisioning expenses. Nevertheless, the Bank's ratios, which have been consistently strong for many years, remained much higher than the peer group average.

IB was incorporated in the emirate of Sharjah in 1975. Its principal shareholders are businessmen from Sharjah and Abu Dhabi. With total assets of AED12 billion at end 2013, it ranks among the smaller banks in the country. The bulk of its customers are small and medium-sized companies, although with the growth of the Bank's capital it is increasingly in a position to reach out to some of the larger companies as well. Contractor and trade finance and loans to manufacturing companies are important corporate banking activities.


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Source: CPI Financial


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