TEXT - Fitch affirms Abu Dhabi Islamic Bank ratings

Thu Nov 15, 2012 10:57am EST

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(The following statement was released by the rating agency)
    Nov 15 -  Fitch Ratings has affirmed Abu Dhabi Islamic Bank's 
(ADIB) Long-term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook and 
Viability Rating (VR) at 'bb'. A full list of rating actions is at the end of 
this release.

RATING DRIVERS AND SENSITIVITIES - IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR

ADIB's IDRs are driven by potential state support from the UAE authorities. A 
change in Fitch's view of the willingness or ability of the UAE authorities to 
support ADIB would be negative for its IDRs and its Support Rating Floor. 
However, Fitch notes recent supportive actions for the domestic banking sector 
including pre-emptive capital injections. In addition, Fitch believes that 
support would be forthcoming from the Abu Dhabi government ('AA'/Stable/'F1+'), 
which has injected hybrid capital into the leading Abu Dhabi banks. Members of 
the Abu Dhabi ruling family hold a significant amount of ADIB's shares in a 
private capacity. Given the high level of ADIB's IDRs there is limited upside 
potential.

RATING DRIVERS AND SENSITIVITIES - VR

ADIB's VR is driven by its robust pre-impairment operating profit, sound balance
sheet liquidity and its growing franchise in the UAE. The VR is constrained by 
ADIB's weak asset quality and exposure to problem financing.   Fitch has some 
concerns relating to ADIB's below average Fitch Core Capital relative to peers 
although Fitch recognises the improved regulatory Tier 1 capital ratio.

ADIB's asset quality continues to suffer from its exposure to legacy financing. 
Impaired financing/ gross financing remains elevated at 7.6% at end-9M12 but has
come down from 8.7% at end-2011. Reserves for impaired financing improved to 80%
at end-9M12 but the unreserved proportion of impaired loans/ common equity 
remained at 11.8%. Overall  asset quality issues present some challenges for 
ADIB and exposure to a seasoning financing book may continue to present 
challenges in 2013, albeit manageable ones in Fitch's opinion.

ADIB increased its CBUAE regulatory Tier 1 ratio to 19.4% with a USD1bn Tier 1 
hybrid issue in November 2012 which Fitch views as positive. Fitch assigned 50% 
equity credit to the issue resulting in a Fitch Eligible Capital ratio of 16.6% 
compared to 13.8% prior to the issue, assuming stable risk weighted assets. 
ADIB's Fitch Core Capital ratio of 10.7% at end-9M12 remains below domestic and 
regional peers but does not include the added AED3,672m cushion from the new 
hybrid Tier 1 issue or the existing AED2,000m hybrid Tier 1 capital injected by 
the Abu Dhabi Government, both of which  provide some extra comfort. 

ADIB's robust pre-impairment operating profit should provide sufficient capacity
to absorb continuing impairment charges as well as moderate shocks from 
financing concentrations. Impairment charges continued to hurt profitability in 
9M12 and consumed 39% of pre-impairment operating profit. ADIB's net income and 
margins compare well with peers. The bank's cost/ income ratio is likely to 
remain at its current level as ADIB continues to invest in its retail 
operations. 

ADIB's liquidity is healthy and compares well with peers. ADIB's large stock of 
liquid assets provides the bank with sound liquidity.

ADIB is well funded by customer deposits and its financing/deposits ratio 
remains healthy at 89%. However the vast majority of customer deposits are short
term which results in a large asset and liability maturity mismatch. ADIB 
increased its long-term funding in November 2010 and November 2011 through 
issuing two five-year sukuk totalling AED4.6bn which help its long-term mismatch
somewhat.

A significant and sustained improvement in asset quality as well as maintaining 
its recently increased capital ratios could lead to an improvement in ADIB's VR 
although Fitch recognises the challenges in the UAE operating environment and 
continuing asset quality problems. Pressure on ADIB's VR could come from a 
further deterioration in asset quality, profitability or a significant 
deterioration in capital ratios.

The rating actions are as follows:

Long-Term IDR affirmed at 'A+' with a Stable Outlook
Short-Term IDR affirmed at 'F1'
Viability Rating affirmed at 'bb'
Support Rating affirmed at '1' 
Support Rating Floor affirmed at 'A+'
ADIB Sukuk Company Ltd 
Trust certificate issuance programme affirmed at 'A+' / 'F1'
Senior unsecured certificates affirmed at 'A+'

 (Caryn Trokie, New York Ratings Unit)
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