Abu Dhabi Commercial Bank (ADCB) has been downgraded to a "hold" after analysts raised concern about its finances. ING Wholesale Banking downgraded ADCB shares because of what it sees as an "overstretched balance sheet", it said in a report. "ADCB is an unfavoured stock in the GCC," said Amr Abol-Enein, the author of the report. "ADCB was a top loser in the GCC banking universe, the stock having lost 56 per cent of its value, year to date. We downgrade the stock to hold... on low margins, slow growth potential and high risks associated with its loan book."
Mr Abol-Enein also said he saw ADCB's loan book bearing the highest risk among its peers, with 42 per cent of it in real estate, construction and share purchase financing. However, he said he viewed favourably the Islamic unit that the bank was planning to launch, and also saw lower operating costs beyond the short-term as inflation slowed. "A possible merger with the National Bank of Abu Dhabi could also work as a support trigger for its medium-term price performance," he added.
In addition, next year's first quarter figures are likely to compare favourably to the same period this year, where costs were inflated by consultants' fees and start-up expansions. Traders were divided over the impact of the downgrade, with some suggesting the market may have already priced in such concerns and that ING was late in raising such problems. At the end of last month, EFG Hermes issued a short-term "neutral" recommendation, but said investors should "accumulate" the shares for the long term.
"After a dismal period for ADCB, recent results have been encouraging," said the EFG Hermes report. "ADCB had among the best loan growth in the third quarter of 2008 at 13 per cent, quarter on quarter, matched by a solid 11 per cent deposit growth." When the Abu Dhabi Exchange closed for the holidays this week, ADCB shares were trading at Dh2.55; that is down from a yearly high of Dh5.97. ADCB was unavailable for comment.
afoxwell@thenational.ae