Press Release 17 December 2008:
Moody's downgrades outlooks on four UAE banks

DIFC - Moody's Investors Service has today announced that it has revised downwards the outlooks on the ratings of four banks based in the United Arab Emirates (UAE). The rating outlooks for Abu Dhabi Commercial Bank (ADCB), First Gulf Bank (FGB), and Dubai Islamic Bank (DIB) have been changed to 'negative' from 'stable', while the rating outlook on Dubai Bank (DB) has been changed to 'stable' from 'positive'. Concurrently, the outlooks on the ratings for all senior unsecured debt issued by the above-named banks have also been revised accordingly.

"Today's rating action reflects: (i) the mounting liquidity pressures in the short to medium term; (ii) the growing downward pressures on asset prices (mainly stocks and properties); and (iii) the anticipated profitability pressures from rising funding costs derived from increasingly scarce liquidity and loss of confidence," explains John Tofarides, Analyst in Moody's Financial Institutions Group.

Moody's observes that liquidity conditions in the UAE weakened significantly during Q3 2008. The flight of speculative deposits from the country created substantial short-term liquidity pressures, which prompted the UAE Central Bank to offer emergency liquidity support facilities, and the Ministry of Finance to announce a three- to five-year deposit scheme to fill the gaps created by the disappearance of the long-term funding market. Moody's notes that soaring loan growth levels and future loan commitments, in tandem with maturing MTN programmes, are exacerbating the pressures on UAE banks' liquidity.

"Moody's recognizes that the currently excellent asset quality and profitability levels reported by all UAE banks -- as a result of the benign credit environment up until autumn 2008 -- may be negatively affected going forward," cautions Mr. Tofarides. Looking ahead, the operating environment in the UAE is faced with increasing challenges emanating from the volatility in both the equity and real estate markets.

Indeed, there is increasing evidence that the demand for properties in the UAE has dwindled significantly due to (i) negative sentiment, (ii) lack of affordability and (iii) poor systemic liquidity. Moody's expects these trends to continue. Moreover, the observed slowdown in quarter-by-quarter real estate investment returns (although these were still positive until Q3 2008, according to Colliers International House Price Index) points to a continued decelerating trend. Although Moody's cannot predict the extent and severity of the highly likely property market squeeze, the rating agency nevertheless remains cautious, particularly with regard to banks whose loan composition appears to be largely tilted towards real estate and construction loans.

Moody's notes that, it will continue to monitor the ratings of all UAE banks and may take rating actions if evidence of a liquidity squeeze, emerging asset quality problems or profitability pressures materialise.

The ratings and outlooks on the four affected banks are as follows:

Abu Dhabi Commercial Bank PJSC:

- BFSR: C-/Baa2 (Negative outlook)
- Global Local Currency Deposit Ratings: Aa3 (Negative Outlook).
- Foreign Currency Deposit Ratings: Aa3 (Negative Outlook).
- Foreign Currency Debt Rating for senior debt obligations: Aa3 (Negative outlook).
- Foreign Currency Debt Rating for subordinated obligations: A1 (Negative outlook).
- Short-term Local Currency and Foreign Currency rating remains unchanged at P-1.
- Commercial Paper Rating remains unchanged at Prime-1.

First Gulf Bank:

- BFSR of D+/Ba1 (Negative outlook).
- Global Local Currency Deposit Ratings of A2 (Negative outlook).
- Foreign Currency Deposit Ratings of A2 (Negative outlook).
- Foreign Currency Debt Rating for senior debt obligations of A2 (Negative outlook).
- Foreign Currency Debt ratings for subordinated obligations of A3 (Negative outlook).
- Short-term Local Currency and Foreign Currency rating remains unchanged at P-1

Dubai Islamic Bank:

- BFSR of D+/Baa3 (Stable outlook)
- Global Local Currency Issuer Ratings of A1 (Negative outlook).
- Foreign Currency Issuer Ratings of A1 (Negative outlook).
- Foreign Currency Debt rating for senior debt obligations (Sukuk) of A1 (Negative outlook).
- Short-term Local Currency and Foreign Currency rating remains unchanged at P-1

Dubai Bank:

- BFSR of D/Ba2 (Stable outlook)
- Global Local Currency Issuer Ratings of A3 (Stable outlook),
- Foreign Currency Issuer Ratings of A3 (Stable outlook)
- Foreign Currency Debt rating for senior debt obligations (Sukuk) of A3 (Stable outlook).
- Short-term Local Currency and Foreign Currency rating remains unchanged at P-2.

Abu Dhabi Commercial Bank reported total assets of AED135.4 billion (US$36.8 billion) as at 30 September 2008. Moody's previous rating action on this bank was taken on 24 April 2007, when the BFSR was changed to C- from D+, while all other ratings remained unchanged.

First Gulf Bank reported total assets of AED103.9 billion (US$28.3 billion) as at 30 September 2008. Moody's previous rating action on FGB was the assignment of initial ratings on 6 June 2007.

Dubai Islamic Bank reported total assets of AED86.8 billion (USD23.58) as at 30 September 2008. Moody's previous rating action on Dubai Islamic bank was the assignment of initial ratings on 16 November 2006.

Dubai Bank reported total assets of AED16.5 billion (US$4.5 billion) as at 30 September 2008. Moody's previous rating action on Dubai Bank was the assignment of initial ratings on 18 August 2008.

The principal methodology used in rating the above-named four UAE-based banks was "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", published in March 2007, and "Bank Financial Strength Ratings: Global Methodology", published in February 2007. Both are available on www.moodys.com in the Credit Policy & Methodologies directory, within the Ratings Methodologies sub-directory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody's website.

DIFC
John Tofarides
Analyst
Financial Institutions Group
Moody's Middle East Ltd.
Telephone: +971-44-01-9536

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