Dubai – Mubasher: Moody's Investors Service has placed all ratings of Commercial Bank of Dubai (CBD) on review for downgrade.

The bank’s long-term deposit ratings were set at Baa1, whereas the short-term deposit ratings were placed at P-2, the US-based ratings agency said in a recent report.

Meanwhile, Moody's has adjusted the baseline credit assessment (BCA) at ba1, according to the report.

The counterparty risk ratings were classified at A3/P-2. While the counterparty risk assessments were placed at A3(cr)/P-2(cr) on review for downgrade.

Moody's also changed the outlook on the long-term bank deposits to ‘ratings under review’ from ‘stable’.

CBD's deteriorating asset quality has pushed Moody's to initiate a review for downgrade of its ratings, as well as the increase in loans formation problem in the corporate and mid-corporate loan portfolio this year, the report highlighted.

The Dubai-based bank's problem loans rose to 8% of gross loans as of June 2018 from 6.1% in December 2017, when applying IFRS9 standards.

The review for downgrade “will assess the recent material deterioration in CBD's asset quality, as well as the potential for further deterioration in the bank's credit profile,” the report said.

The review will also “take into account the future evolution of the bank's solid capitalisation and sound profitability supported by CBD's established commercial banking franchise in Dubai,” Moody’s added.

A material improvement in asset quality, along with stable capitalisation and profitability could result in a confirmation of the current ratings.

The Emirati bank’s asset quality is expected to improve materially as long as capitalisation and profitability are stable, which will consequently confirm the current ratings, it said.

“Further downward pressure on the ratings could materialise through a continued deterioration in the bank's asset quality, and/or a significant weakening in the bank's capitalisation or profitability,” the rating agency noted.