Abu Dhabi Commercial Bank stock rating raised to ’A+’ by S&P

Investing.com -- S&P Global Ratings upgraded Abu Dhabi Commercial Bank PJSC (ADCB) to ’A+’ from ’A’, citing improved asset quality and strategic balance-sheet derisking over the past four years. The short-term rating was affirmed at ’A-1’ with a stable outlook, reflecting the expectation that the bank’s strong capitalization and credit quality will continue to align with the system average.

ADCB’s strategic initiatives have bolstered its resilience against economic fluctuations and unexpected stresses. The bank has reduced its exposure to high-risk sectors, particularly real estate and construction, from 29% of total exposures at the end of 2020 to 14% by the end of 2024. Meanwhile, lending to more creditworthy government and public sector entities has risen from 21% to 27% of total lending in the same period.

The bank has also seen a decline in the share of Stage 3 loans, which dropped to 3.6% of gross loans by December 31, 2024, from 4.6% the previous year. Stage 2 loans saw a reduction to 4.9% from 5.7%. These improvements are attributed to tighter underwriting standards and enhanced debt collection strategies. ADCB’s provision coverage ratio has increased to 77% from 57%, indicating a stronger position to cover problematic loans.

S&P Global Ratings acknowledges the Abu Dhabi government’s capacity to provide extraordinary support to ADCB, considering the bank’s importance to the local economy and its close relationship with the government. The rating incorporates a three-notch uplift based on the likelihood of government support. The agency forecasts Abu Dhabi’s fiscal strength to be buoyed by increased oil production and an average Brent oil price of $70 per barrel over the medium term.

ADCB’s capitalization remains a key strength, with a risk-adjusted capital (RAC) ratio projected to stay between 10.7% and 11.0% over 2025-2026. The bank’s five-year strategy includes enhancing non-interest income through asset management, investment services, and increased trading income. Despite an expected tightening of interest margins, forecasted loan growth of 12%-15% and rising non-interest income are projected to support an average operating revenue growth of 12% over the next two years.

The stable outlook assumes ADCB will continue to maintain its strong capital buffers and absorb any unexpected credit losses with robust pre-provision earnings. While a positive rating action is considered unlikely in the next 24 months, a negative rating action could occur if there is a significant increase in credit growth or risk appetite that weakens the bank’s capitalization or if there is a deterioration in asset quality indicators.

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