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S&P cuts Abu Dhabi Commercial Bank rating

The bank made a net loss of 531 million dirhams in the three months to June 30.

September 16, 2010 10:59 by

Ratings agency S&P downgraded Abu Dhabi Commercial Bank (ADCB) on Wednesday, citing the local lender’s large real estate loans and exposure to Dubai World.

Banks in the United Arab Emirates have suffered from substantial exposure to bad loans due to the region-wide property slump and the Dubai debt crisis since Nov. 2009.

“We are lowering our long- and short-term ratings on the bank to ‘A-/A-2′ from ‘A/A-1′, and assigning a stable outlook,” the agency said in a statement.

“High single-party concentration in ADCB’s loan book has exacerbated asset quality erosion faster than we expected,” it added.

In July, ADCB said it had 6.6 billion UAE dirhams ($1.80 billion) worth of exposure to indebted state conglomerate Dubai World

The bank made a net loss of 531 million dirhams in the three months to June 30, compared to a 225 million dirham net profit in the first quarter.

“The bank’s large proportion of construction and real estate (CRE) loans, its exposure to Dubai World, and its high single-party concentration increases the challenges it faces, and in our view, is hindering management’s ability to tackle problems,” S&P said.

UAE banks are exposed to a falling real estate sector and non-performing loans, with analysts forecasting a slow loan growth in 2010.

A report by Dubai-based Shuaa Capital said in August some individual banks could need additional liquidity injections to meet the central bank’s capitalisation requirements.

ADCB priced a 750 million Malaysian ringgit ($157.2 million) bond in August, driven by increased investor demand, carrying a coupon of 5.20 percent, sources familiar with the matter had said.

(Reporting by Martina Fuchs; Editing by Elaine Hardcastle)

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