Fitch Ratings has affirmed
Fitch has also upgraded ENBD's Viability Rating (VR) to 'bbb-' from 'bb+'. A full list of rating actions is below.
The VR upgrade reflects decreased concentration to the
Key Rating Drivers
ENBD's IDRs are driven by potential support from the
ENBD's VR reflects the decreased, albeit still significant, concentration to the
Favourable Environment: Operating conditions are solid for
Strong
Decreased Related-Party Lending: ENBD's related-party lending (direct exposure to the
Reduced Impaired Loans Ratio: ENBD's impaired loans ratio (Stage 3 under IFRS 9) was 5.6% at end-1H23, down from 6% at end-2022, on the back of sizeable recoveries and absence of new large Stage 3 loans. Impaired loans were 98% covered by specific provisions (147% by total provisions) at end-1H23. We expect the impaired loans ratio to remain at 5%-6% in the medium term.
Strong 1H23 Profitability: The annualised loan impairment charges/loans ratio decreased to 22bp in 1H23 from 110bp in 2022, supported by recoveries at
Solid CET1 Ratio: ENBD's common equity Tier 1 (CET1) ratio was a high 16.6% at end-1H23 (end-2022: 15.4%), but should be considered in light of still high concentration to the
Strong Funding Profile: ENBD's funding and liquidity profile is a rating strength. The bank has a strong deposit base, which is more diversified than at most peers, and it benefits from a high portion of CASA (61% at end-1H23). Its gross loans-to-deposits ratio was a healthy 86% at end-1H23, and its liquidity coverage was a strong 217%.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
ENBD's Long-Term IDR would be downgraded following a downgrade of its GSR. The latter would likely stem from either a weaker ability of the sovereign to support the bank, which would be reflected in a
Increased exposure to high risk markets, losses at subsidiary banks, or lending growth exceeding internal capital generation that results in a material weakening of ENBD's capitalisation could be credit negative, particularly if Fitch considers capitalisation not be commensurate with the bank's risk profile.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of ENBD's Long-Term IDR could come from an upgrade of its GSR. The latter would likely stem from a stronger ability of the
A further sustained reduction in the concentration to the
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
ENBD's Short-Term IDR of 'F1' is the lower of the two options corresponding to an 'A+' Long Term IDR, as described in Fitch's Rating Definitions. This is because a significant proportion of
ENBD's senior unsecured programmes and notes issued under these programmes are rated in line with the bank's Long- and Short-Term IDRs and ex-government support (xgs) xgs ratings, reflecting Fitch's view that the likelihood of default of these obligations is the same as that of the bank.
ENBD's Long-Term IDR (xgs) is driven by its VR, and its Short-Term IDR (xgs) is driven by its Long-Term IDR (xgs).
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
ENBD's Long-Term IDR (xgs) would mirror changes to its VR.
A downgrade of ENBD's Short-Term (xgs) could come from a downgrade of its Long-Term IDR (xgs). An upgrade of ENBD's Short-Term IDR (xgs) could come primarily from an upgrade of its Long-Term IDR (xgs).
The senior unsecured debt ratings are sensitive to changes in ENBD's Long- and Short-Term IDRs and its Long- and Short-Term IDRs (xgs).
VR ADJUSTMENTS
The operating environment score of 'bbb-' is below the 'aa' category implied score, due to the following adjustment reasons: size and structure of economy (negative), financial market development (negative), regulatory and legal framework (negative) and international operations (negative).
The asset quality score of 'bbb-' is above 'bb' category implied score, due to the following adjustment reason: impaired loans formation (positive).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
ENBD's IDRs are linked to the
ESG Considerations
ENBD has an ESG Relevance Score of '4' for Governance Structure due to high related-party lending and significant exposure to the
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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