Capital Intelligence Ratings has affirmed the Financial Strength Rating of UAE’s InvestBank at ‘BBB’ with a ‘Stable’ outlook.
The rating is supported by InvestBank’s solid capital adequacy ratio, good profitability, and high loan-loss reserve coverage ratio.
Although InvestBank’s good net loans to stable funds ratio is cited as a supporting factor, CI Ratings notes that some key liquidity ratios have tightened further in Q1 2016 and that the net liquid asset ratio was sharply lower than at end 2015.
If liquidity ratios were to continue to tighten over 2016 this would be viewed as a source of concern.
The FSR is constrained by the elevated credit risks in the operating environment, which led to some asset quality stresses, high customer concentration in the deposit base (in common with many banks), sector concentration in construction, and a small balance sheet.
The Long- and Short-Term Foreign Currency Ratings are maintained at ‘BBB’ and ‘A3’, respectively.
The FCRs 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.
The stresses in the SME segment contributed to some increase in non-performing loans resulting in the weakening of asset quality ratios last year.
There was an encouraging decline in impaired loans in the first quarter of 2016 and key ratios strengthened.
The coverage ratio continues to be sound. The large capital base provides additional cover and performing loans have substantial collateral cover with a sizable cash component.
The CAR has been solid for many years and although the ratio declined in 2015 owing to the growth in risk-weighted assets and slow capital increase, it was still at a solid level.
Despite the tightening of liquidity in the banking system towards end 2015, InvestBank’s liquidity ratios continued to be good overall. Its net loans to stable funds ratio has been maintained at a good level over the last several years.
InvestBank has a much lower level of liquid assets than many banks in the country but its net liquid asset ratio (after adjusting for short-term inter-bank liabilities) has been better than the peer group average, and a sizable three-quarters of total liquid assets consists of highly liquid cash and balances with the central bank.
Maturity gaps on the balance sheet are fairly small compared to many peers, reflecting the high level of short-term loans on the Bank’s balance sheet. Liquid and quasi-liquid assets are at satisfactory levels.
Notwithstanding the declining trend, InvestBank’s operating profitability ratio remains strong, underpinned by a wide net interest margin, a good non-interest income base and low operating costs.
The Bank’s profitability ratios have been consistently good and well above the peer group average for many years. A sizable risk charge last year led to a fall in net profit and although the return on average assets fell substantially over the previous year it was still good.
InvestBank’s margins have declined in recent periods but continue to be much better than the sector average. The strong growth in fees and commissions in 2015 and Q1 2016 is a positive development.
About InvestBank
InvestBank (profile) was incorporated in the emirate of Sharjah in 1975. Its principal shareholders are businessmen from Sharjah and Abu Dhabi. With total assets of AED 14 billion at end 2015, IB ranks among the smaller banks in the country. The bulk of its customers are small and medium-sized companies. However, with the growth of its capital InvestBank 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.
Capital Intelligence Ratings (CI Ratings) can be found at http://www.ciratings.com.