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Moody's places Dubai Bank on review, direction uncertain
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24 May 2011 |
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Moody's Investors Service has today placed the E+ bank financial strength rating (BFSR), mapping to B1 on the long-term rating scale, of Dubai Bank on review with direction uncertain. At the same time, Moody's has also placed on review with direction uncertain DB's Baa2/Prime-3 local and foreign-currency issuer ratings. Concurrently Moody's has placed on review with the same direction the provisional P(Baa2)/Prime-3 ratings of DB Sukuk Company Ltd a special purpose entity created to issue Trust Certificates to investors under US$5 billion Trust Certificate Issuance Programme, launched on behalf of Dubai Bank.
REVIEW RATIONALE
The review follows the Government of Dubai's public announcement (on 16 May 2010) that it plans to inject capital into Dubai Bank, protect the interest of all depositors and ensure that Dubai Bank's operations remain uninterrupted. The aforementioned capital injection however has yet to occur and there is still a lack of explicit information regarding its amount and timing. There is also uncertainty regarding the extent of the bank's impairments that triggered the government's decision to provide extraordinary support. DB's financial report for 2010 has yet to be published. Given the significant variation in possible outcomes, Moody's has placed all DB's ratings on review with direction uncertain.
Although the government's announcement is viewed as a credit positive, the standalone ratings could still be lowered if the loan portfolio cleanup and recapitalisation is not concluded in the immediate future, or if Moody's considers DB's post-rescue creditworthiness to be better-reflected in a lower rating. On the other hand, DB's standalone ratings could be upgraded if we were to see a swift and strong restoration of its financial condition, though the probability of an immediate upgrade seems moderate.
During the review process, Moody's will also consider whether its assumption of government support embedded in the bank's issuer ratings is appropriate. This assumption currently provides the Baa2 issuer ratings five notches of uplift from the bank's standalone rating. The nature and extent of the government support to redress the bank's financial position will be an important consideration in this analysis.
Finally, the review will also consider the possibility of a merger with another bank, an option that could be deployed as part of the support effort. The government's announcement leaves open the prospect for a merger with another banking institution. Such a development could have significant implications for both the stand-alone and supported ratings of the bank.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
The principal methodologies used in rating this issuer are "Bank Financial Strength Ratings: Global Methodology", and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
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Source: beta.thehindu.com |
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