Credit Rating Announcement
Ref: AE02315PRS00-1
th
14 September 2016
Commercial Bank International’s Ratings Raised
Capital Intelligence Ratings (CI Ratings or CI), the international credit rating agency, today
announced that it has raised the Financial Strength Rating (FSR) of UAE’s Commercial Bank
International (CBI) to ‘BBB-’ from ‘BB’, in view of the Bank’s continued improvement in asset quality and
the increase in capital. More importantly, the Bank is well-placed to grow its business by leveraging its
close connections with Qatar National Bank (QNB) and is therefore in an advantageous position in the
domestic market vis-à-vis other banks of similar size. The substantial business support extended by its
major shareholder, QNB, as well as the Bank’s strong fee and commission income base are other
factors supporting the rating upgrade. Tight liquidity metrics, high customer concentrations in deposits
and loans, and the current challenging domestic environment are constraining factors for the rating.
The Long- and Short-Term Foreign Currency Ratings (FCRs) are raised to ‘A-’ and ‘A3’, respectively,
from ‘BB’ and ‘B’. The ratings upgrade is strongly underpinned by the substantial financial support from
QNB, which is one of the best rated entities in the region with a Long-Term FCR and an FSR of ‘AA-’.
QNB and CBI also share a logo and by inference, reputation. CI Ratings believes that QNB would raise
its shareholding to a majority stake if permitted by local authorities. The Bank’s association with QNB
and their joint marketing efforts has given it access to many top quality accounts in the country. For
QNB, CBI represents a vital channel to the UAE, which is an important market in the region. Moreover,
given CBI’s small size, QNB should be able to comfortably absorb any assistance provided to the Bank,
should support be needed.
The Support Rating is raised to ‘2' from ‘3’, in view of the demonstrated financial and business
assistance extended to the Bank by QNB and the extremely high likelihood that the latter will provide
support in case of need. The rating is also underpinned by the demonstrated support of the UAE
government to all the banks in the country. A ‘Stable’ Outlook is assigned to all the ratings. An increase
in the FSR would be possible through further asset quality improvements combined with better liquidity
metrics and strong growth of core business assets, which can deliver improved profitability.
CBI has received considerable support from its major shareholder through a subscription to its Tier 1
note issuance, which helped offset its net loss last year. In addition, QNB provided liquidity and capital
support by purchasing performing loans and placing a term deposit with the Bank. CBI is also capable
of leveraging QNB’s sizeable balance sheet, significant connections, and global network to substantially
build its own business, particularly in the large corporate banking, trade finance, FI, and treasury areas.
Asset quality improved last year partly due to the write-off of a large number of legacy non-performing
loans (NPLs). The NPL ratio fell substantially and the coverage ratio improved. Remedial action on
several of the remaining NPLs is ongoing and further recoveries are imminent. There was a good
increase in the loan-loss reserve coverage ratio in both 2015 and H1 2016 and further increases are
expected in the coming quarters. The Bank’s newer (post-2010) credit portfolio is of good quality. In
common with most banks, CBI had been adversely affected by the stresses in the SME segment in the
country in the second half of 2015, however, the losses have been absorbed and the situation is now
stable. In any case, the Bank’s SME book is not significant.
The Tier 1 capital issue and the contraction of the balance sheet through NPL write-offs and sales of
performing loans (to QNB), as well as the disposal of non-core investment assets strengthened both the
capital adequacy and Tier 1 ratios in 2015, and although the ratio is below the peer group average it is
still good. CBI expects to maintain its CAR at a minimum level of 14% this year. The current level of
capital is likely to be sufficient for the anticipated increase in risk-weighted assets this year, but more
capital will be needed as the Bank’s strategies gain traction and business levels rise. The Bank plans to
raise capital in 2017.
Capital Intelligence Ratings Ltd. Oasis Complex, Block E, Gladstone Street, P.O. Box 53585, 3303 Limassol, Cyprus
Telephone: 357 25 342300 Facsimile: 357 25 817750 E-mail: capital@ciratings.com Web site: http://www.ciratings.com
Key liquidity ratios were stretched at end 2015 and they continued to be tight at end H1 2016. The Bank
has received liquidity support from QNB and its customer deposit growth in H1 2016 has been strong.
Nevertheless, both net loan to customer deposits and net loan to stable funds ratios remained tight. The
levels of liquid and quasi-liquid assets are also low providing only a limited cushion against systemic
shocks. Although the availability of credit from QNB is a mitigating influence, the Bank’s tight liquidity
metrics constrain the ratings.
Profitability ratios had weakened in 2015, following the contraction of the loan and investment portfolios
and a large provision charge. The Bank is building assets in its core businesses but for all practical
purposes 2016 continues to be a transition year and gross income is unlikely to grow significantly.
However, a significant reduction in provision charges could strengthen the return on average assets.
The Bank has a high fee and commission income base, which is a major strength.
CBI is 40% owned by QNB, one of the Gulf region’s largest and strongest banks. With total assets of
AED17.3 billion at end June 2016, CBI ranks among the UAE’s smaller banks. It is primarily a corporate
bank with a moderate-sized retail banking business.
CREDIT RATINGS
Foreign Currency
LT
ST
A-
A3
Financial
Strength
Support
BBB-
2
Outlook
FC
FSR
Stable
Stable
CONTACT
Primary Analyst
Karti Inamdar
Senior Credit Analyst
Tel: +91 124 401 2142
E-mail: karti.inamdar@ciratings.com
Secondary Analyst
Tom Kenzik
Senior Credit Analyst
E-mail: tom.kenzik@ciratings.com
Rating Committee Chairman
Morris Helal
Senior Credit Analyst
The information sources used to prepare the credit ratings are the rated entity and public information. CI considers
the quality of information available on the issuer to be satisfactory for the purposes of assigning and maintaining
credit ratings. CI does not audit or independently verify information received during the rating process.
The ratings have been disclosed to the rated entity and were amended following that disclosure. Ratings on the
issuer were first released in August 2008. The ratings were last updated in October 2015.
The principal methodology used in determining the ratings is the Bank Rating Methodology. The methodology, the
meaning of each rating category, the time horizon of rating outlooks and the definition of default, as well as
information on the attributes and limitations of CI's ratings, can be found at www.ciratings.com. Historical
performance data, including default rates, are available from a central repository established by ESMA (CEREP) at
http://cerep.esma.europa.eu.
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