OREANDA-NEWS. Fitch Ratings has affirmed six UAE banks' ratings. A complete list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS
The affirmation of the banks' Long-term IDRs, Support Ratings and Support Rating Floors, except for HSBC Bank Middle East Limited (HBME), reflects the extremely high probability of support available from the UAE authorities, and governments of Abu Dhabi (AA/Stable/F1+) and Dubai, if required.

Fitch's view of support considers the sovereign's strong capacity to support the banking system, sustained by its sovereign wealth funds and on-going revenues mostly from its hydrocarbon production, despite the lower oil prices, and the moderate size of the UAE banking sector in relation to the country's GDP. Fitch also expects there is high willingness from the authorities to support the banking sector, which has been demonstrated by the UAE authorities' long track record of supporting domestic banks, as well as close ties and part government ownership links of a number of banks.

Five of the banks - National Bank of Abu Dhabi (NBAD), First Gulf Bank (FGB), Abu Dhabi Commercial Bank (ADCB), Union National Bank (UNB) and Emirates NBD (ENBD) - have Support Ratings of '1', reflecting the extremely high probability of state support.

NBAD's 'AA-' Support Rating Floor reflects its flagship status in the UAE and Abu Dhabi in particular, at one notch above Abu Dhabi domestic systemically important banks' (D-SIB) Support Rating Floor of 'A+'. The other three Abu Dhabi banks - FGB, UNB and ADCB - are at the D-SIB Support Rating Floor of 'A+', reflecting their high systemic importance. Abu Dhabi D-SIBs' Support Rating Floor is also one notch higher than other UAE banks, due to Abu Dhabi's superior financial flexibility.

ENBD's Support Rating Floor of 'A+' is one notch above the UAE D-SIB Support Rating Floor of 'A', reflecting its flagship status in the UAE, and Dubai in particular.

HBME's Support Rating of '1' reflects very strong potential institutional support from its parent, HSBC Holdings plc (HSBC, AA-/Stable). Fitch's view is based on HBME being a key and integral subsidiary of HSBC Holdings, where HBME is HSBC's wholly owned vehicle for its Middle East and North African operations. A high level of integration and common branding also provide strong motivation to support in case of need, in Fitch's view.

KEY RATING DRIVERS - DEBT RATINGS
Existing senior unsecured programmes, the trust certificate issuance programme of FGB Sukuk Company Ltd, ADCB Islamic Finance (Cayman) Limited, HBME Sukuk Company Limited and EIB Sukuk Company Limited (subsidiary of Emirates Islamic Bank PJSC for which ENBD has guaranteed sukuks issued in 2012) and the notes issued under these programmes are rated in line with the Long- or Short-term IDR of the respective bank.

ADCB Finance (Cayman) Limited's subordinated debt rating is notched off its IDR to reflect Fitch's belief that sovereign support is likely to extend to subordinated debt and is one notch below the Long-term IDR reflecting relative loss severity.

KEY RATING DRIVERS -VRs
The UAE is one of the largest and most diversified economies in the GCC. Fitch views Abu Dhabi, and by extension the UAE, as a resilient economy, supported by robust growth, particularly through strong government spending infrastructure projects and an expanding non-oil sector. However, growth is moderating in response to lower oil prices. Abu Dhabi, and the UAE as a whole, has reduced government spending to match lower revenues, through lower government spending on infrastructure projects, removal of fuel and electricity subsidies, and the intention to remove remaining subsidies for electricity and gas. The non-oil private sector is also likely to slow as reduced government spending filters through to the rest of the economy.

Asset quality metrics were stable at all six banks in 2015. Fitch believes that asset quality metrics will stay fairly stable in 2016, with some deterioration possible given lower expected economic activity. All banks remain profitable, although some have started to feel margin pressures due to a modest tightening of liquidity in 3Q15, which appears to have stabilised. Fitch views funding and liquidity as strong for all six banks. The market is very liquid and banks do not have trouble increasing customer deposits if they are willing to pay for them.

All six banks have adequate capital ratios, although in some cases risk weighted assets are low due to significant zero-weighted government exposures, which may overestimate capital ratios. High lending concentrations also pose a potential risk for the banks' capitalisation. Buffers can nevertheless absorb moderate unexpected credit losses, supported by high levels of pre-impairment operating profit, which results in strong internal capital generation.

NBAD
NBAD's VR is underpinned by the bank's leading franchise and flagship status, especially in Abu Dhabi. The strength of its management and its close links to the Abu Dhabi government, benefit both its lending and funding profile. NBAD's consistently sound profitability, resilient asset quality and conservative risk appetite further support the VR. The VR also factors in the bank's high loan and deposit concentration (although deposit concentration decreased after the substantial repayment of government deposits in 2015) and high related party lending.

FGB
FGB's VR reflect its strong retail and corporate franchise, better asset quality ratios and less related party lending than peers, sound and consistent profitability, adequate liquidity and capital ratios. The VR also considers its concentrated funding base.

UNB
UNB's VR reflect its solid domestic franchise, better asset quality ratios and lower lending concentration than most peers, albeit still high, and less related party lending. It also factor in UNB's adequate profitability, liquidity and capital ratios, and still concentrated funding base.

ENBD
ENBD's VR is constrained by the bank's high but improving impaired loans, it also has one of highest loan concentrations among peers and moderate share of restructured loans. The VR also reflects the bank's leading UAE franchise, with one of the largest market shares of lending, high and diversified revenue streams, improved profitability as loan impairment charges reduced in 2015, strong customer deposit base and healthy capital ratios.

ADCB
ADCB's VR reflects the bank's solid commercial franchise, experienced management, good capital buffers, sound profitability metrics, adequate liquidity position and modest proportion of impaired loans and its full coverage by reserves. However, the VR is constrained by signifficant borrower and sector concentration (although this is applicable for most banks in the region), high related party lending (mainly to companies where the ultimate controlling party in the Government of Abu Dhabi) and a large volume of restructured and renegotiated exposures which are currently performing.

HBME
HBME's VR benefits from being part of the HSBC group, and its rating reflects its solid regional franchise, diversified and sound earnings, lower related party lending than most local banks, adequate capital and strong liquidity. It also reflects the bank's weaker reserve coverage of impaired compared with peers, higher cost income ratio, high borrower concentration and a significant volume of renegotiated loans.

RATING SENSITIVITIES - IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS
The banks' Support Ratings and Support Rating Floors are sensitive to a reduction in the perceived ability or willingness of the authorities to provide support to the banking sector, or a change in Fitch's view of support in the UAE. Given the still robust fiscal position of Abu Dhabi, and by extension the UAE, the authorities' strong track record of support for local banks and no plans for resolution legislation at this stage, downward pressure is currently low.

HBME's Long-term IDR is based on Fitch's expectation of availiable support from HSBC. Any changes in the IDR would be linked to that of HSBC or to a change in Fitch's expectation of HSBC's propensity to support its subsidiary. Coordination by regulators remains a prerequisite for maintaining aligned group ratings. However, this could change depending on how authorities' resolution frameworks will be applied to HSBC group and its local entities. There may be cases for greater rating differentiation between entities in the group, e.g. if Fitch concludes that material resources are trapped or if support is discouraged.

RATING SENSITIVITIES - DEBT RATINGS
A change in the banks' IDRs would ultimately lead to a change in the ratings of the unsecured bond and sukuk issuance programmes, the senior and subordinated notes rated under these programmes, as well as other senior or subordinated debt.

RATING SENSITIVITIES - VRs
The banks' VRs could be downgraded if asset quality and profitability metrics weakened significantly and affected the banks' capital ratios. Positive pressure could stem from a reduction in lending and deposit concentration, and lower related party lending.

NBAD
Given the high rating, an upgrade of the VR is unlikely.Downward pressure on NBAD's VR could arise from a significant deterioration in asset quality and consequent weaker capital ratios, or a material increase in concentration.

FGB
Although upside potential is limited, an upgrade of the VR could arise from further diversification in the bank's loan portfolio and the deposit base. The VR could be downgraded if asset quality were to materially deteriorate, eroding the bank's healthy profitability and capital.

UNB
There is limited upside potential at present. It could arise in the longer term from a reduction in concentration levels on both sides of the balance sheet. The VR could be downgraded if asset quality were to materially deteriorate, eroding the bank's healthy profitability and capital.

ADCB
ADCB's VR could be upgraded if the bank demonstrates successful repayment of restructured exposures and a longer track record of asset quality performance, including a significant reduction in new restructures. ADCB's VR could be adversely affected by any significant deterioration in asset quality, which results in a sharp drop in capital ratios.

ENBD
If the bank succeeds in working out the remaining problem loans, and reducing its large concentration to the Dubai government, an upgrade of the VR would be possible. Any significant deterioration in ENBD's asset quality metrics or capital ratios, or further significant increases in loan concentration - especially to related parties - could lead to a downgrade of the VR.

HBME
An upgrade of HBME's VR may result from a further demonstrated recovery in renegotiated loans and continued improvement of asset quality. HBME's VR would be sensitive to a deterioration in asset quality or profitability metrics, which affected the bank's capital ratios.

The rating actions are as follows:

National Bank of Abu Dhabi:
Long-term IDR affirmed at 'AA-'; Stable Outlook
Short-term IDR affirmed at 'F1+'
Viability Rating affirmed at 'a-'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'AA-'
EMTN programme affirmed at 'AA-'/'F1+'

ECP Programme affirmed at 'F1+'
Senior unsecured debt affirmed at 'AA-' and 'F1+'

First Gulf Bank:
Long-term IDR affirmed at 'A+'; Stable Outlook
Short-term IDR affirmed at 'F1'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A+'
EMTN programme affirmed at 'A+'/'F1'
ECP programme affirmed at 'F1'
Negotiable Certificate of Deposit programme affirmed at 'A+ / F1'
Senior unsecured notes affirmed at 'A+'
Senior unsecured programme affirmed at 'A+' and 'F1'

FGB Sukuk Company Limited:
Trust certificate issuance programme affirmed at 'A+'
Senior unsecured certificates affirmed at 'A+'

Union National Bank:
Long-term IDR affirmed at 'A+'; Stable Outlook
Short-term IDR affirmed at 'F1'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A+'
EMTN programme affirmed at 'A+'/'F1'
Senior unsecured debt affirmed at 'A+'

Abu Dhabi Commercial Bank:
Long-term IDR affirmed at '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+'
GMTN programme affirmed at 'A+'
Senior unsecured notes affirmed at 'A+'
ECP Programme affirmed at 'F1'

ADCB Finance (Cayman) Limited:
Senior unsecured notes affirmed at 'A+'
Subordinated notes affirmed at 'A'

ADCB Islamic Finance (Cayman) Limited:
Senior unsecured trust certificates affirmed at 'A+'

HBME:
Long-term IDR affirmed at 'AA-', Stable Outlook
Short-term IDR affirmed at 'F1+'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
EMTN programme and senior unsecured notes affirmed at 'AA-'/'F1+'

HBME Sukuk Company Limited:
Trust certificate issuance programme affirmed at 'AA-'

ENBD:
Long-term IDR affirmed at '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+'
ECP programme affirmed at 'F1'
Senior unsecured notes affirmed at 'A+' and 'F1'
Subordinated notes affirmed at 'A'
Senior unsecured programme affirmed at 'A+' and 'F1'

EIB Sukuk Company Limited:
Trust certificate issuance programme affirmed at 'A+'
Senior unsecured certificates affirmed at 'A+'