CREDIT RATING RATIONALE PP8713/10/2007

Transcription

1 CREDIT RATING RATIONALE PP8713/10/2007 FINANCIAL INSTITUTION RATINGS JULY 2010 Analysts: Sophia Lee (603) Joanne Kek (603) Principal Activity: Commercial banking Instrument: Proposed RM3.8 billion Senior Unsecured Conventional or Islamic Medium-Term Notes Islamic Contract: To be determined Rating(s): AAA [Reaffirmed] Rating Outlook: Stable Last Rating Action: 30 November 2009 Coupon Rate/Profit Margin: Determined at issuance Maturity Date: Up to 20 years Lead Arrangers: The Royal Bank of Scotland Berhad, Standard Chartered Bank Malaysia Berhad and HSBC Bank Malaysia Berhad Trustee: To be appointed Shariah Advisor: To be appointed EMIRATES NBD PJSC Rating Update Summary RAM Ratings has reaffirmed the AAA rating of Emirates NBD PJSC s ( Emirates NBD or the Group ) Proposed RM3.8 billion Senior Unsecured Conventional or Islamic Medium-Term Notes, with a stable outlook. The rating reflects Emirates NBD s systemic importance in the United Arab Emirates ( UAE ) banking system, being the country s largest bank. The rating gives further credence to its healthy capitalisation level as well as the strong financial support from its ultimate major shareholder the Government of Dubai. Nevertheless, the Group s strengths are moderated by its weakened asset quality amid the global financial crisis, its heavier reliance on wholesale funding compared to other AAA-rated peers and the vulnerability of the value of its property collateral given the realestate crisis in Dubai. As the flagship bank of Dubai, Emirates NBD benefits from the firm support of the government, as recently demonstrated by the AED4 billion capital injection into the Group and the conversion of AED12.6 billion of deposit placements by UAE Ministry of Finance ( UAE-MOF ) into a Tier-2 capital-qualifying instrument. These infusions boosted the Group s risk-weighted capital adequacy ratio (based on Basel II definition) to a healthy 19.6% as at end-march Emirates NBD s profit performance remained resilient with annualised returns on assets ( ROA ) of 1.2% and 1.6% in FYE 31 December 2009 ( FY Dec 2009 ) and 1Q FY Dec 2010, respectively. Meanwhile, the Group s asset quality had weakened amid the crisis, albeit remaining at a healthy level; its gross impaired loan ratio was higher at 2.6% as at end-march 2010 (end-december 2008: 0.9%). Elsewhere, the Group s loan-to-deposit ( LD ) ratio remained high at 111% as at end-march 2010, albeit easing from 129% as at end-december Like many UAE banks, Emirates NBD has a heavier reliance on wholesale funding compared to its AAA-rated peers under RAM Ratings portfolio; wholesale funding exposes the Group to roll-over risk from these lumpy borrowings, although we note that there is a high chance of financial support from shareholders should the need arise. The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

2 Bank Profile, Ownership & Financial Flexibility Largest bank in UAE and GCC by asset size Flagship bank of Dubai, government support forthcoming if needed Emirates NBD was incorporated following the merger of the former Emirates Bank International PJSC and National Bank of Dubai PJSC. Emirates NBD is the largest bank by asset size in the UAE as well as within the GCC countries, with total assets of AED billion 1 as at end-march The Group has the leading position in commercial banking, garnering around a one-fifth share of outstanding loans and deposits currently in the UAE's banking system. Emirates NBD also has the largest banking network in the UAE. The Group s operations are mainly centred in Dubai, where 91 of its 133 branches are located; meanwhile, the Group has 18 and 12 branches in Abu Dhabi and Sharjah, respectively, as well as 12 other branches in the other emirates within the UAE. Apart from commercial banking, Emirates NBD also offers other financial services that include Islamic banking, investment banking, brokerage, asset management, and card-payment processing services. As Emirates NBD is regarded as the flagship bank of Dubai and is of systemic importance to the UAE s banking industry 2, we believe that the Government of Dubai, which owns 56% of the Group via the Investment Corporation of Dubai ( ICD ), will extend firm support to the Group should the need arise. This was recently demonstrated by ICD s subscription of AED4 billion Tier-1 capital notes to strengthen the Group s capitalisation level amid the crisis. Meanwhile, the Group's shareholding structure is fairly concentrated, with the top 10 shareholders stake in Emirates NBD coming to almost 76%. Apart from ICD, the other top 10 shareholders of the Group include prominent families and high networth individuals from the Middle East. Management & Strategies Government remained supportive and committed to revive UAE s economy Dubai experienced a real-estate crisis at the same time as the global financial crisis in 2008/09. The challenging operating environment prompted Dubai World, a government-related entity, to announce the standstill and restructuring of its debt obligations. Nonetheless, the strong creditworthiness of the UAE and its decisive measures to provide financial support to Dubai World have limited the impact of potential contagion effects on the rest of the emirates and the Gulf Cooperation Council ( GCC ) region. While Dubai slowly recovers from the global financial crisis and its real-estate crisis, we note that the UAE government remained supportive and committed to revive the country s economic activities with substantial infrastructure spending, mainly centred in the emirate of Abu Dhabi, its capital city. Moreover, with the 1 2 About RM252 billion, based on the exchange rate of AED1.00 = RM0.87 as at 31 March RAM Ratings Country Assessment Report on the UAE (April 2010) is available on Emirates NBD PJSC 2

3 price of crude oil picking up from the low of about USD40 per barrel in the midst of the crisis (early 2009) to about USD70 to USD85 per barrel currently, the UAE s GDP growth is estimated to bounce back from the 0.7% contraction last year to 1.3% in Dubai s economy remained supported by its trading, transport and communication sectors, which represent about 47% of its GDP, while we note that economic activities from its real estate and construction sector (24% of GDP) are expected to remain sluggish in the near term given the recent real estate fallout. Emirates NBD to selectively and prudently expand its lending portfolio Seeking to capture other areas of growth Emirates NBD plans to remain opportunistic in its growth strategy in Given the slower economic growth in Dubai, the Group targets to selectively and prudently expand its lending portfolio. The Group, however, will continue to focus on enhancing its risk-management framework, improving customer retention and boosting its funding sources. Emirates NBD also aims to continue optimising its cost structure to improve efficiency although it has already gained cost synergies flowing from the recent integration of the 2 banking entities within its stable. Historically, wholesale banking has been the major revenue driver for Emirates NBD, which has a strong position in lending to large corporations and financial institutions as well as government-linked companies and agencies. However, the Group also seeks to capture opportunities in the retail banking market in Abu Dhabi and other areas of growth such as Islamic banking, private banking and Small-and Medium-sized Enterprise banking. Chart 1: Percentage contribution to operating income by division 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 31 Dec Dec Mar 10 Corporate banking 43% 41% 43% Consumer banking 36% 27% 32% Islamic banking 11% 8% 6% Treasury 4% 14% 11% Cards processing 4% 4% 4% Others 2% 6% 3% Source: Emirates NBD 3 Estimates by International Monetary Fund. Emirates NBD PJSC 3

4 Asset Quality 76% of assets comprised financing assets Risk-weighted assets reduced Higher impaired loans amid crisis High credit costs Emirates NBD s asset base remained at AED282 billion as at end-fy Dec 2009 compared with a year ago. The composition of its assets also remained largely unchanged, with loans (including Islamic financing) constituting the largest portion at 76%, while cash and bank balances (11%), securities (6%) and other assets (7%) comprised the remainder of its asset base. Given the challenging operating environment in 2009, the Group had scaled down its lending exposure to most sectors, except the services, government entities and the real estate sectors (of which lending was mostly extended to toptier names). With this shift of composition, we note that the Group s risk-weighted assets (in relation to corporate and consumer banking) had reduced from AED191 billion in FY Dec 2008 to AED176 billion in FY Dec 2009, despite a 3% gross loan growth during the year. Emirates NBD s counterparty credit risk is mainly exposed to sovereign entities (25%), personal lending (18%), real estate (14%), financial institutions (13%), as well as the services sector (11%). We also note that the Group is exposed to large loans. Nonetheless, the Group had not been spared from the crisis, with a rising trend of troubled credits during the period. Its gross impaired loans jumped to AED5.6 billion as at end-march 2010 from AED2.0 billion as at end-december Correspondingly, its gross and net impaired ratios deteriorated to 2.56% and 0.84%, respectively (FY Dec 2008: 0.95% and 0.1%); however, these remained at a healthy level compared with its AAA-rated peers under RAM Ratings portfolio. The spike in impaired loans was mainly attributable to the financial institution, trade and construction sector and personal financing (encompassing personal loans, credit cards, car loans and mortgages), which saw weakened delinquency during the period. With higher gross impaired loans, credit costs as a proportion of average gross loans came up to a high of 1.7% in FY Dec 2009 and 1.0% (annualised) in 1Q FY Dec We expect the Group s impairment charges to remain high in the next few quarters until Dubai s economy recovers, which is anticipated to be in early Elsewhere, the Group continued to prudently maintain a high gross impaired loan coverage ratio at above 100%; this ratio was at 102% as at end- March Emirates NBD PJSC 4

5 Chart 2: Emirates NBD s asset quality trend 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% AED million 6,000 5,000 4,000 3,000 2,000 1,000 0 FY Dec 07 FY Dec 08 FY Dec 09 1Q FY Dec 10 Gross impaired loans Gross impaired loan ratio Net impaired loan ratio Source: Emirates NBD Chart 3: Composition of gross impaired loans as at 31 December 2009 (excludes Islamic banking financing) Manufacturing 2% Construction 16% Personal Retail 59% Trade 7% Financial Institutions 13% Services 2% Real Estate 1% Source: Emirates NBD Emirates NBD PJSC 5

6 Chart 4: Composition of gross loans as at 31 December 2009 (excludes Islamic banking financing) Personal Retail 12% Government 25% Services 11% Real Estate 14% Personal Corporate 6% Others 4% Financial Institutions 13% Manufacturing 4% Construction 4% Trade 4% Transport, Storage & Communication 3% Source: Emirates NBD Cautious view on volatile property prices 40% of securities rated A- and above Average VaR increased in 2009 Given the recent real estate fallout, RAM Ratings maintains a cautious view on the volatile property prices in the UAE. Apart from the Group s direct lending to the construction and real estate sectors, properties held as collateral for loans may also expose it to fluctuating property prices. Additionally, given the slow revival of the Dubai economy, its personal lending portfolio may deteriorate further in the next few quarters although the Group had tightened its credit standards during the year. Meanwhile, Emirates NBD s trading and investment securities stood at AED17.1 billion as at end-march 2010, down from AED19.6 billion as at end-fy Dec Approximately 40% of these securities are rated A- and above (on the international rating scale). Given that more than half of Emirates NBD s total securities holdings were investments beyond the local shores of the UAE, trading or investment performance of the Group may be more sensitive to international or regional events. Emirates NBD manages market risks by monitoring limit utilisation on a daily basis; these limits include notional amount, stop-loss position, open position and value-at-risk ( VaR ) limits. The historical time series for all limit exposures is presented to senior management as part of the monthly report prepared by the Asset Liability Management Committee. Emirates NBD s VaR system has been set up to generate daily reports at 2 different confidence levels (95% and 99%) under 3 holding-period assumptions (1-day, 10-day, and 180-day); VaR is calculated using both historical and Monte Carlo simulation techniques. The Emirates NBD PJSC 6

7 average VaR 4 of the Group in FY Dec 2009 was higher at AED3.8 million compared with AED1.7 million in FY Dec Nonetheless, its average VaR remained less than 0.1% of its equity in both instances. Financial Performance Profit performance impacted by heftier impairment losses Emirates NBD s profit performance was impacted by heavier impairment charges amid the global financial crisis. Its pre-tax profits moderated to AED3.3 billion in FY Dec 2009 (FY Dec 2008: AED3.7 billion), despite an increase in gross income to AED10.6 billion (FY Dec 2008: AED8.2 billion). In relation to this, ROA on a pre-tax basis had declined to 1.2% (FY Dec 2008: 1.4%). The heftier impairment losses, which amounted to AED3.4 billion (FY Dec 2008: AED1.4 billion), were in line with higher delinquencies during the year as well as the setting aside of higher collective provisions in preparation for the compliance of UAE Central Bank s ( CB UAE ) new proposed guideline on collective provisions, whereby all banks must provide 1.25% of their credit risk assets. Elsewhere, its net interest margin improved to 2.4% (end-fy Dec 2008: 2.0%), on the back of upward repricing of its corporate lending rates in the crisis and the lower cost of funding, with several interest rate cuts by the CB UAE during the year. Chart 5: Profitability indicators 11,000 2% 9,000 7,000 AED million 5,000 3,000 1,000 1% 1,000 FY Dec 07 FY Dec 08 FY Dec 09 1Q FY Dec 10* Gross income 7, , , ,501.3 Pre tax profits 3, , , ,110.1 ROA 1.9% 1.4% 1.2% 1.6% 0% * ROA annualised Source: Emirates NBD Note: Figures prior to FY Dec 07 are that of Emirates Bank only; ROA in FY Dec 2007 was calculated based on combined assets of Emirates Bank and NBD 4 Calculated using Monte Carlo simulation, with 99% confidence level and 1-day holding period. Emirates NBD PJSC 7

8 Higher impairment charges expected in 2010 In 1Q FY Dec 2010, Emirates NBD generated pre-tax profits of AED1.1 billion, which translated into ROA of 1.6% (annualised). The impairment charges for the period remained high at AED555 million (1Q FY Dec 2009: AED462 million). In view of the slower economic recovery in Dubai, the number of troubled credits may continue to rise in As such, its impairment charges may remain high in Furthermore, the rescheduling of its credit exposure to Dubai World is likely to be subjected to impairment charges, although the Group expects to remain profitable in Funding & Liquidity CB UAE helped to shore up liquidity Tighter funding and liquidity profile compared to some peers, but government support has been forthcoming In 2008, the UAE financial system experienced large movements in foreign speculative funds. These deposits, also known as hot money, had flowed into the UAE banking system amid mounting speculation that the country might revalue its US dollar-pegged currency as the dollar plunged to record lows. As the speculation had largely abated by 2H 2008, the UAE banking system was subsequently hit by massive withdrawals of such hot money, estimated at approximately AED200 billion 5. Coupled with the global financial crisis, the UAE financial system had suffered a liquidity crunch. In response, the UAE-MOF and the CB UAE helped shore up liquidity by pumping in AED50 billion of deposits into domestic banks and providing an additional AED50 billion liquidity facility to ease the tight situation. On this note, Emirates NBD had received deposits from the UAE-MOF in 2H 2008 amounting to AED12.6 billion, which supported the Group s ongoing efforts in managing its funding position. Emirates NBD funds its asset base mainly via customer deposits, which comprised 77% of its total interest-bearing funding as at end-march 2010; interbank funding and other borrowings represented about 12% and 11%, respectively, of the rest of its funding base. The Group s loans-to-deposits ratio stood at 111% as at end-march 2010 (end-fy Dec 2008: 129%). As the expansion rate of loan assets has generally outpaced that of its deposit base, Emirates NBD has been exploring alternative funding avenues in recent years. In this regard, Emirates NBD s structural funding and liquidity profile is weaker compared with some of its AAA-rated peers. As at end-march 2010, Emirates NBD has about AED3.8 billion of senior and subordinated debts (including sukuk) maturing from April to December Based on the availability of cash and liquid assets, RAM Ratings believes that Emirates NBD would be able to repay or secure refinancing vis-à-vis the maturing liabilities. Additionally, support from the UAE government is expected to be forthcoming should the need arise, given the Group s systemic importance in the UAE banking sector. 5 Source: Gulf News dated 25 Dec Figure was quoted by Nasser Al Shaikh, the director general of the Dubai Department of Finance. Emirates NBD PJSC 8

9 Capitalisation Capitalisation level still strong Emirates NBD s Tier-1 risk-weighted capital-adequacy ratio ( RWCAR ) and overall RWCAR 6 stood at 12.4% and 19.6%, respectively, as at end-march 2010 (end-december 2008: 9.4% and 11.4%). The Group s current capitalisation indicators compare well against its rated peers. On top of earnings accumulation, the higher RWCAR recorded as at end-march 2010 was primarily due to the issuance of AED4 billion Tier-1 capital notes, taken up by its major shareholder, ICD, and the conversion of AED12.6 billion of UAE-MOF deposits into a Tier-2 capital-qualifying instrument. 6 Based on Basel II definition. Emirates NBD PJSC 9

10 Corporate Information Emirates NBD Date of Incorporation: 2007 Commencement of Business: Major Shareholders as at 31 December 2009: Directors: Auditors: Listing: 2007 Investment Corporation of Dubai 56% HE Ahmed Humaid Al Tayer HE Easa Saleh Al Gurg Fardan Bin Ali Fardan Al Fardan HE Abdullah Ahmed Lootah Khalid Jassim Kalban Hamad Mubarak Buamim Hussain Hassan Mirza Al Sayegh HE Abdulla Bin Sultan Bin Mohamed Al Owais Butti Obaid Butti Al Mulla Khalid Juma Al Majid KPMG and Ernst & Young Listed in Dubai Securities Market Key Management: Major Subsidiaries: Rick Pudner Rajan Khetarpal Abdul Wahed Al Fahim Jamal Bin Ghalaita Suresh Kumar John Eldredge Kevin Flannery Abdullah Qassem Suhail Bin Tarraf Jan Hendrik Kraus Sulaiman Al Mazroui Emirates Islamic Bank PJSC Emirates NBD Capital Network International Chief Executive Officer Acting Chief Financial Officer/ Chief Risk Officer Deputy Chief Executive Officer / General Manager, Wholesale Deputy Chief Executive Officer / General Manager, Consumer Banking & Wealth Management Chief Executive Officer of Investment Banking General Manager, Treasury & Global Markets General Manager, International Chief Operating Officer, ITO & Administration General Manager, Human Resources General Manager, Integration / Head of Group Strategy General Manager, Marketing & Corporate Communication 99.8% 100% 100% Capital History: Year Remarks Amount (AED 000) 2007 Issue of new shares 4, Issue of bonus shares Issue of bonus shares Cumulative Total (AED 000) 4, , , Emirates NBD PJSC 10

11 FINANCIAL SUMMARY Emirates NBD PJSC Group proforma unaudited STATEMENT OF FINANCIAL POSITION (AED million) 31-Dec Dec Dec Dec Mar-10 ASSETS Cash & Money At Call , , , , Deposits & Placements With Financial Institutions 6, , , , , Securities Purchased Under Resale Agreements Financial Assets Held for Trading 3, , , Financial Investments Available for Sale 4, , , , , Financial Investments Held to Maturity , Gross Loans & Advances 95, , , , , Collective Impairment Allowances ^ (178.07) (359.54) (570.87) (1,857.92) (1,935.69) Individual Impairment Allowances ^^ (723.01) (1,612.26) (1,762.08) (3,416.91) (3,756.00) Net Loans & Advances 94, , , , , Statutory Deposits 6, , , , , Investments in Associates and/or Joint Ventures 2, , , , , Property, Plant & Equipment , , , , TOTAL ASSETS 125, , , , , LIABILITIES Customer Deposits 191, Demand 12, , , , NA Savings 2, , , , NA Fixed 34, , , , NA Others , , , NA Interbank Deposits 19, , , , , Bills & Acceptances Payable 1, , , , , Securities Sold Under Repurchase Agreements , , , , Other Borrowings , , , , Debt Securities & Hybrid Capital 11, , , , , Other Liabilities 3, , , , , Paid-up Capital 2, , , , , Share Premium & Other Reserves 4, , , , , Statutory Reserves , , , , Retained Profits/(Accumulated Losses) , , , , TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS 8, , , , , Minority Interests TOTAL EQUITY 8, , , , , TOTAL LIABILITIES AND EQUITY 95, , , , , COMMITMENTS & CONTINGENCIES 32, , , , , TIER 1 CAPITAL 8, , , , NA CAPITAL BASE 10, , , , NA Note: ^ Prior to FY Dec 2010, known as General Loan Loss Reserves ^^ Prior to FY Dec 2010, known as Specific Loan Loss Reserves ** Round figure NA = Not available / Not applicable Emirates NBD PJSC 11

12 FINANCIAL SUMMARY Emirates NBD PJSC Group proforma unaudited STATEMENT OF COMPREHENSIVE INCOME (AED million) 31-Dec Dec Dec Dec Mar-10 3 months Interest Income 4, , , , , Interest Expense (2,593.45) (6,941.40) (5,746.92) (5,205.17) (1,162.11) Net Interest Income 1, , , , , Non-Interest Income 1, , , , Gross Income 3, , , , , Personnel Expenses (706.10) NA (2,189.00) (2,181.00) NA Other Operating Expenses (576.71) (2,800.81) (1,262.52) (1,527.66) (890.05) Loan Impairment Charges * (166.59) (735.85) (641.54) (2,970.97) (519.72) Share of Associated Companies'/Joint Ventures' Profits/(Losses) (161.61) (1.56) Pre-Tax Profit/(Loss) 1, , , , , Taxation Net Profit/(Loss) 1, , , , , Other Comprehensive Income/(Loss): Foreign Currency Translation Differences NA NA Net Gains/(Losses) on Available For Sale Investments NA NA (1,810.35) Net Changes in Cash Flow Hedges NA NA (294.68) Other Components of Comprehensive Income/(Loss) NA NA Income Tax Relating to Components of Other Comprehensive Income/(Loss) NA NA Total Comprehensive Income/(Loss) NA NA 2, , , Note: * Prior to FY Dec 2010, known as Loan Loss Provisions NA = Not available / Not applicable Emirates NBD PJSC 12

13 FINANCIAL RATIOS Emirates NBD PJSC Group proforma unaudited KEY FINANCIAL RATIOS (%) 31-Dec Dec Dec Dec Mar-10 PROFITABILITY Net Interest Margin 1.87% 2.28% 2.02% 2.40% 2.22% * Non-Interest Income Margin 1.98% 1.73% 0.60% 0.98% 1.11% * Cost To Income 42.24% 39.41% 46.42% 36.42% 35.30% Cost Over Total Average Assets 1.65% 1.60% 1.29% 1.32% 1.25% * Return On Assets 2.43% 2.26% 1.37% 1.19% 1.55% * Return On Equity 22.71% 23.19% 14.46% 11.58% 13.54% * Dividend Payout 23.75% 0.00% 41.77% 30.23% 0.00% ASSET QUALITY Gross Impaired Loan Ratio ^ 2.65% 1.09% 0.94% 2.30% 2.56% Net Impaired Loan Ratio ^ 1.58% 0.14% 0.10% 0.75% 0.84% Net Impaired Loans To Total Assets ^ 1.09% 0.09% 0.08% 0.58% 0.62% Individual Impairment Allowance For The Period 0.31% 0.63% 0.23% 0.78% 0.81% * Gross Impaired Loan Coverage ^ 50.99% % % % % Loan Loss Reserve Coverage 1.35% 1.17% 1.10% 2.39% 2.61% Collective Loan Loss Reserve Coverage 0.27% 0.22% 0.27% 0.86% 0.90% LIQUIDITY & FUNDING Liquid Asset Ratio 21.22% 17.76% 11.56% 11.59% 14.97% Interbank Deposits To Total Interest Bearing Funds 23.96% 20.94% 19.61% 12.36% 12.23% Customer Deposits To Total Interest Bearing Funds 59.89% 63.26% 65.73% 74.65% 76.82% Loans To Deposits Ratio % % % % % Loans To Stable Funds Ratio 94.44% 84.64% 95.80% 89.42% 85.16% CAPITAL ADEQUACY Total Equity To Total Assets 9.26% 9.91% 9.12% 11.35% 11.61% Tier 1 Risk Weighted Capital Adequacy Ratio 12.92% 10.49% 9.38% 13.25% 12.40% ~ Overall Risk Weighted Capital Adequacy Ratio 15.59% 13.12% 11.38% 20.79% 19.60% ~ Internal Rate Of Capital Generation 17.32% 23.19% 9.25% 12.54% 14.49% * Note : ^ Prior to FY Dec 2010, Impaired Loans were known as Non-Performing Loans * annualised ~ as published by Emirates NBD Emirates NBD PJSC 13

14 FINANCIAL RATIOS Emirates NBD PJSC Group KEY FINANCIAL RATIOS PROFITABILITY Net Interest Margin Non-Interest Income Margin Cost To Income Cost Over Total Average Assets Return On Assets Return On Equity Dividend Payout ASSET QUALITY Gross Impaired Loan Ratio Net Impaired Loan Ratio Net Impaired Loan To Total Assets Individual Impairment Allowance For The Period Gross Impaired Loan Coverage Loan Loss Reserve Coverage Collective Loan Loss Reserve Coverage LIQUIDITY & FUNDING Liquid Asset Ratio Loans To Deposits Ratio Loans To Stable Funds Ratio Short-Term Funds Total Interest Bearing Funds FORMULAE Net Interest Income / Average Total Assets Non-Interest Income / Average Total Assets (Personnel & Other Operating Expenses) / Gross Income (Personnel & Other Operating Expenses) / Average Total Assets Pre-Tax Profit/(Loss) / Average Total Assets Pre-Tax Profit/(Loss) / Average Total Equity Dividends / Net Profit/(Loss) Total Impaired Loans / Gross Loans (Total Impaired Loans - Individual Impairment Allowances) / (Gross Loans - Individual Impairment Allowances) (Total Impaired Loans - Individual Impairment Allowances) / Total Assets Individual Impairment Allowance For The Period / Average Gross Loans (Collective Impairment Allowances + Individual Impairment Allowances) / Total Impaired Loans (Collective Impairment Allowances + Individual Impairment Allowances) / Gross Loans Collective Impairment Allowances / (Gross Loans - Individual Impairment Allowances) Liquid Assets / Customer Deposits & Short-Term Funds Net Loans / Customer Deposits Net Loans / (Shareholders' Funds + Total Interest Bearing Funds + Collective Impairment Allowance - Interbank Funding - Property, Plant & Equipment - Investments in Associates) Interbank Deposits + Bills & Acceptances + Securities Sold Under Repos Financial Institutions + Quoted Securities (Excluding Financial Investments Held-To-Maturity) Customer Deposits + Interbank + Bills & Acceptances + Securities Sold Under Repos + Borrowings + Supplementary Capital CAPITAL ADEQUACY Internal Rate Of Capital Generation (Net Profit/(Loss) + Extraordinary Income - Dividend + Collective Impairment Allowances) / Average Total Equity Emirates NBD PJSC 14

15 CREDIT RATING DEFINITIONS Issue Ratings An Issue Rating is RAM Ratings' current opinion on the creditworthiness of a particular debt issue. It reflects the overall capacity and willingness of an issuer to meet the financial obligations on a particular debt issue on a full and timely basis, taking into accountits expressed terms and conditions. Long-Term Ratings AAA AA A BBB BB B C D An issue rated AAA has superior safety for payment of financial obligations. This is the highest long-term Issue Rating assigned by RAM Ratings. An issue rated AA has high safety for payment of financial obligations. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments. An issue rated A has adequate safety for payment of financial obligations. The issuer is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. An issue rated BBB has moderate safety for payment of financial obligations. The issuer is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. An issue rated BB has low safety for payment of financial obligations. The issuer is highly vulnerable to adverse changes in circumstances, economic conditions and/oroperating environments. An issue rated B has very low safety for payment of financial obligations. The issuer has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. An issue rated C has a high likelihood of default. The issuer is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaulting on a particular debt issue. An issue rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular debt issue. Short-Term Ratings P1 P2 P3 NP D An issue rated P1 has high safety for payment of financial obligations in the short term. This is the highest short-term Issue Rating assigned by RAM Ratings. An issue rated P2 has adequate safety for payment of financial obligations in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. An issue rated P3 has moderate safety for payment of financial obligations in the short term. The issuer is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. An issue rated NP has doubtful safety for payment of financial obligations in the short term. The issuer faces major uncertainties that could compromise its capacity for payment of a particulardebt issue. An issue rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular debt issue. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings which have been enhanced by a bank guarantee or other supports, respectively. Emirates NBD PJSC 15

16 CREDIT RATING DEFINITIONS Issue Ratings - Partnership-Based Sukuk AnIssueRatingforapartnership-basedsukuk is RAM Ratings' current opinion on the creditworthiness of a particular partnership-based sukuk. It reflects the overall capacity and willingness of an issuer to meet the payment of capital and expected returns on a full and timely basis, taking into account the expressed terms and conditions of the investment contract. RAM Ratings sukuk ratings are, however, not a measure of compliance with Shariah principles or the role, formation,practices,legitimacy and soundness of the Shariah advisors recommendations and decisions. Long-Term Ratings AAA AA A BBB BB B C D A sukuk rated AAA has superior safety for payment of capital and expected returns. This is the highest long-term Issue Rating assigned by RAM Ratings to a partnership-based sukuk. A sukuk rated AA has high safety for payment of capital and expected returns. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments. A sukuk rated A has adequate safety for payment of capital and expected returns. The issuer is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. A sukuk rated BBB has moderate safety for payment of capital and expected returns. The issuer is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated BB has low safety for payment of capital and expected returns. The issuer is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. A sukuk rated B has very low safety for payment of capital and expected returns. The issuer has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. A sukuk rated C has a high likelihood of not meeting the payment of capital and expected returns. The issuer is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it not fulfilling the terms of the investment contract. A sukuk rated D is either currently not meeting or will not meet the payment of capital and expected returns. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise the fulfilment of the investment contract's terms. Short-Term Ratings P1 P2 P3 NP D A sukuk rated P1 has high safety for payment of capital and expected returns in the short term. This is the highest shortterm Issue Rating assigned by RAM Ratings a partnership-based sukuk. A sukuk rated P2 has adequate safety for payment of capital and expected returns in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. A sukuk rated P3 has moderate safety for payment of capital and expected returns in the short term. The issuer is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated NP has doubtful safety for payment of capital and expected returns in the short term. The issuer faces major uncertainties that could compromise its capacity for fulfiling the terms of the investment contract. A sukuk rated D is either currently not meeting or will not meet the payment of capital and expected returns. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise the fulfilment of the investment contract's terms. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings which have been enhanced by a bank guarantee or other supports, respectively. Emirates NBD PJSC 16

17 CREDIT RATING DEFINITIONS Issue Ratings - Debt-Based Sukuk AnIssueRatingforadebt-basedsukuk is RAM Ratings' current opinion on the creditworthiness of a particular debt-based sukuk. It reflects the overall capacity and willingness of an issuer to meet the financial obligations on a particular debtbased sukuk on a full and timely basis, taking into account its expressed terms and conditions. RAM Ratings sukuk ratings are, however, not a measure of compliance with Shariah principles or the role, formation, practices, legitimacy and soundness of the Shariah advisors recommendations and decisions. Long-Term Ratings AAA AA A BBB BB B C D A sukuk rated AAA has superior safety for payment of financial obligations. This is the highest long-term Issue Rating assigned by RAM Ratings to a debt-based sukuk. A sukuk rated AA has high safety for payment of financial obligations. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments. A sukuk rated A has adequate safety for payment of financial obligations. The issuer is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. A sukuk rated BBB has moderate safety for payment of financial obligations. The issuer is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated BB has low safety for payment of financial obligations. The issuer is highly vulnerable to adverse changes in circumstances, economic conditions and/oroperating environments. A sukuk rated B has very low safety for payment of financial obligations. The issuer has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. A sukuk rated C has a high likelihood of default. The issuer is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaulting on a particular sukuk. A sukuk rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular sukuk. Short-Term Ratings P1 P2 P3 NP D A sukuk rated P1 has high safety for payment of financial obligations in the short term. This is the highest short-term Issue Rating assigned by RAM Ratings to a debt-based sukuk. A sukuk rated P2 has adequate safety for payment of financial obligations in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. A sukuk rated P3 has moderate safety for payment of financial obligations in the short term. The issuer is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. A sukuk rated NP has doubtful safety for payment of financial obligations in the short term. The issuer faces major uncertainties that could compromise its capacity for payment of a particularsukuk. A sukuk rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular sukuk. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings which have been enhanced by a bank guarantee or other supports, respectively. Emirates NBD PJSC 17

18 Published by RAM Rating Services Berhad Reproduction or transmission in any form is prohibited except by permission from RAM Ratings. Copyright 2010 by RAM Ratings RAM Rating Services Berhad Suite 20.01, Level 20 The Gardens South Tower Mid Valley City, Lingkaran Syed Putra Kuala Lumpur Tel: (603) / (603) Fax: (603) ramratings@ram.com.my Website: RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. Emirates NBD PJSC 18