INTERNATIONAL. Fitch Ratings has affirmed Abu Dhabi Islamic Bank's (ADIB) Long-term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook, Short-term IDR at 'F1', Individual Rating at 'C/D', Support Rating at '1' and Support Rating Floor at 'A+'.

The affirmation of ADIB's Long- and Short-term IDRs and Support Rating reflects the extremely high probability of support from its shareholders and the UAE authorities, in case of need.

Fitch's opinion of likely support is based on the long history of support for banks in the UAE, ADIB's prominent shareholders and the bank's domestic Islamic franchise. The affirmation of the Individual Rating reflects the bank's sound liquidity and adequate capitalisation. It also reflects high concentrations in financing and asset quality deterioration in 2009.

The bank's 2009 net income declined sharply to Dhs78m (2008: Dhs851m) as a result of a significant increase in the net impairment charge to Dhs1.4bn in 2009 (2008: Dhs460m), representing a high 95% of pre-impairment operating profit. Management has stated that the charge includes a 1.25% collective provision taken on a conservative and pre-emptive basis, in anticipation of new guidelines from the UAE Central Bank. Nevertheless, pre-impairment operating profit increased 16% y-o-y, driven by rapid financing growth (gross financing up 21% in 2009) and rising fee and commission income.

ADIB's asset quality deteriorated in 2009, with impaired financing representing 6% of gross financing at end-2009 (end-2008: 3.5%), largely due to weaker economic conditions in Abu Dhabi and the wider UAE. Reserve coverage of impaired financing improved to 69% at end-2009 (end-2008: 49%) but remains weaker than the sector average, although ADIB should in theory be in a better position than the other banks given the asset-based nature of its financing.

Liquidity was sound, with a financing-to-deposits ratio of 84% at end-2009, one of the lowest in the UAE banking sector. The Tier 1 ratio at end-2009 was adequate at 13.5% (end-2008: 13.5%). This was supported by Dhs2bn of perpetual Sukuk, qualifying as Tier 1 capital, issued in April 2009 and held by the government of Abu Dhabi, to which Fitch has assigned 100% equity credit.

ADIB was created in 1997. Its main shareholders are an investment company controlled by members of the Abu Dhabi ruling family, which owns 40%, and the Abu Dhabi Investment Council with 8%. ADIB is one of the largest Islamic banks in the UAE and serves upper and middle-tier clients in the retail and corporate segments.

In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual ratings and the prospect of external support is reflected in Fitch's Support ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs.

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