International ratings agency Fitch Ratings has downgraded the Dubai’s Mashreqbank’s credit rating to C/D from C, pushing the bank further into non-investment grade, or junk bond, status.
The downgrade reflects concerns over the bank’s exposure to the troubled Saudi groups Saad and Al-Gosaibi, a large volume of retail defaults in the UAE during 2009, and the bank’s sizable exposure to local conglomerate Dubai World’s $22bn debt restructuring.
“Mashreq’s individual rating remains on watch negative pending some clarity on the likely restructuring arrangement of Dubai World with its creditor banks, which Fitch expects to be announced in the next few weeks,” says Mahin Dissanayake, associate director in Fitch’s Financial Institutions team in Dubai.
Mashreqbank’s profit for 2009 was AED1.1bn ($0.29bn), a 39 per cent decline from the previous year. The bank continues to perform well at an operating level with pre-impairment operating profit rising 43 per cent in 2009, reflecting robust core earnings from a strong and well-diversified franchise, said Fitch.
The agency also affirmed the bank’s long-term issuer default rating (IDR) as ‘A’, with stable outlook, and support rating 1.
Mashreq’s IDRs and support rating reflect the expectation the bank will receive support from the UAE federal authorities if necessary, given its systemic importance and the Central Bank of the UAE’s strong history of support.