Mashreqbank – Ratings Affirmed with a Stable Outlook

(MENAFN- Capital Intelligence Ltd) 25 May 2026

Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Mashreqbank (MB or the Bank) at ‘A’ and ‘A1’, respectively. At the same time, CI Ratings has affirmed MB’s Bank Standalone Rating (BSR) of ‘bbb’, Core Financial Strength (CFS) rating of ‘bbb’ and Extraordinary Support Level (ESL) of High. The Outlook for the LT FCR and BSR is Stable.

MB’s LT FCR is set three notches above the BSR to reflect the high likelihood of support from the government in case of need. The UAE government (sovereign ratings: ‘AA-’/‘A1+’/Stable) has demonstrated its support in the past and, in CI’s view, has the means and willingness to continue to provide support in the future.

The BSR is derived from a CFS rating of ‘bbb’ and an Operating Environment Risk Anchor (OPERA) of ‘bbb’. The CFS rating reflects MB’s large balance sheet, domestic systemically important bank (D-SIB) status from 2025 (which comes with higher regulatory capital requirements), good financial fundamentals backed by low NPLs, high loan-loss reserve (LLR) cover, and better than sector median profitability ratios (notwithstanding the lower margins in the recent past). Additional rating supporting factors are the comfortable (though tightening) liquidity supported by a high CASA ratio, and sound capital ratios despite a decline. Non-financial factors supporting the CFS are a well-diversified business base and good management.

MB’s credit challenges include the high customer concentration in loans and deposits, and some sector concentration in real estate and construction. These risk factors are common to the banking industry and reflect the relatively narrow range of economic activity. The lack of adequate country-wise disclosure, particularly given the large international portfolio, together with no information on concentration levels in placements with banks and investments, is also a credit challenge.

The principal challenge currently is significant economic disruption in the UAE, resulting from missile and drone activity. While military exchanges between the US-Israel and Iran have recently reduced in severity, broadly in line with CI’s baseline assumption, the risk of renewed escalation persists in the absence of a near-term negotiated settlement. A resumption or intensification of the conflict would adversely affect the already weakened operating environment across GCC countries (including the UAE) and weigh heavily on regional stability. Downside risks would be more pronounced if the conflict is prolonged or results in sustained disruptions to shipping through the Strait of Hormuz. Given the strong performance of the UAE’s non-oil sector prior to the conflict and the government’s readiness to provide liquidity support, the banking sector and economy are seen as resilient. Additionally, the Central Bank of the UAE (CBUAE) announced a series of measures in mid-March 2026, aimed at strengthening liquidity and encouraging banks to support customers wherever necessary. Both USD and AED liquidity are being injected through a collateralised lending window.

The OPERA for the UAE indicates modest risk and reflects the relative dependence of the economy on hydrocarbons, moderate institutional strength, and limited monetary policy flexibility since the AED is pegged to the USD. We note that the economic risk is partially mitigated by the support of the wealthy emirate of Abu Dhabi to the federation, and the availability of a very large buffer of external assets under the management of sovereign wealth funds in the country. The UAE banking sector remained resilient in 2025, with good financial fundamentals, driven by a strong macroeconomic environment. The OPERA also considers the negative effects of significant regional uncertainties on the Emirati economy and the banking sector.

MB’s business is well-diversified across several products, customer segments and markets. It is expected to withstand the current economic downturn due to its diverse business base, resilient franchises and sound management. The Bank has reduced its reliance on the domestic economy through strategic international expansion and broadening revenue streams beyond local markets. However, high and volatile oil prices weigh heavily on all its operating markets to varying degrees. Reflecting its growing importance and its status as the fifth-largest bank in the UAE, MB was designated a D-SIB last year – a recognition of its scale, extensive market interconnectedness and cross-border growth.

The risks arising from a sizeable growth in MB’s loans and due from banks in 2025, well above the system average, just before the sudden deterioration in the operating environment, are noted but do not cause immediate concern. This is because the growth was widespread across wholesale, financial institutions and retail portfolios, both locally and internationally, and was partly driven by the Bank’s strategy to finance trade flows among all the countries in which it operates, the use of AI-driven technology enabling faster loan processing, and a focus on sectors with manageable risk levels (such as residential mortgages). We also note that irrevocable loan commitments were substantial at the end of Q1 26, which could become a pressure point in case of distressed drawdowns, should there be a significant deterioration in the credit environment. However, these commitments are also contingent upon the borrower maintaining specific credit standards.

The Bank’s robust risk management standards and conservative outlook, combined with strong asset quality indicators – low NPLs and loan-loss reserve (LLR) cover of 230%, including impairment reserves in capital – provide comfort. MB’s asset quality ratios rank among the best in the sector. However, the seasoning of new loans in a weaker operating environment and a thinner CET1 buffer, due to growth in risk-weighted assets (RWAs), are issues that need to be monitored. While the banking sector is expected to see some increase in NPLs both in the UAE and internationally (GCC, Egypt) amid the current challenging market conditions, MB’s high LLR cover, sound CAR and operational profitability provide some safeguards.

The credit portfolio makes up less than half of the balance sheet and is spread across various sectors. Customer concentrations are high but in line with sector averages. Loan growth is expected to moderate this year due to economic disruptions since March, and partly because of capital constraints, despite an AT1 bond issuance in February 2026. Although the due from banks portfolio accounted for 17% of the balance sheet in Q1 26, these are mainly short-term trade-related exposures that are performing well. The investment portfolio is of high quality, primarily consisting of fixed-income securities issued by governments, public-sector entities and financial institutions.

MB has a long track record of solid earnings, with profitability measures such as ROAA and operating profitability remaining healthy and above the sector median. Management did not adopt an ECL macro overlay in Q1 26, possibly due to the Bank’s already high NPL coverage ratio. However, we do expect some pressure on key metrics this year, driven by a potential decline in income amid subdued business sentiment and a possible increase in provisioning expenses towards the latter part of the year. Nonetheless, we anticipate that the main profitability indicators will remain resilient. In 2025, MB’s net interest income edged lower as falling benchmark rates from H2 24 compressed margins, although the Bank’s net interest margin remained higher than its peers, supported by low funding costs and a strong CASA ratio. Robust non-interest income, driven by fees, commissions, insurance and trading gains, provides a useful buffer against interest rate volatility. However, net profit declined in 2025 due to higher impairment charges after write-backs in 2024, a higher tax rate due to the Bank’s classification as a multinational enterprise, and the absence of a one-off gain from a share sale by a subsidiary that boosted 2024 results. Despite this, both operating profitability and ROAA remained solid. MB’s Q1 26 profit performance was strong, with a good y-o-y increase in net profit.

MB’s liquidity ratios were comfortable at the start of the regional conflict, despite tightening at end-2025, due to robust credit expansion. Deposit flight risk is considered low at current conflict intensity levels, supported by a high CASA ratio (62% in 2025 and 63% in Q1 26) and a granular retail deposit base. Corporate deposits, especially from trade and real estate clients facing cash flow issues, may warrant closer monitoring. The CBUAE has provided backstop facilities in both USD and AED, ensuring adequate liquidity, although a prolonged Strait of Hormuz closure could reduce oil revenues and dirham supply. The Bank regularly accesses international capital markets. Should international markets temporarily close for GCC issuers, bilateral funding remains a viable alternative, reducing refinance risk. This is supported by the Bank’s favourable maturity profile, with nearly half of term borrowings maturing beyond five years. The liquidity coverage ratio and net stable funding ratio demonstrate strong resilience against short-term liquidity stress. Consistent with its historical performance through previous downturns, MB is expected to maintain a solid liquidity position.
Capital ratios had declined to below the sector median in 2025 due to substantial growth in RWAs. However, the Tier 1 ratio and CAR improved after the Bank raised USD500mn through an AT1 issuance in February 2026, just before the outbreak of hostilities, strengthening MB’s capital position as it entered a challenging period. Tier 1 improved to 14.5% in Q1 26. We note that the Bank is nearing a point where asset growth needs to slow, or either dividend payments must decrease or additional hybrid capital must be issued.

Concerns about the decline in capital ratios from higher levels in the past are eased by the high quality of the Bank’s credit exposures, its strong overall financial health, and management’s solid track record. Despite a solid return on equity of 19% in 2025, the Bank opted for a lower dividend payout ratio, signalling a conservative approach. We expect the Bank to adopt a cautious stance this year as well, prioritising profit retention over dividends to safeguard capital buffers. If additional capital becomes necessary, the Bank has the flexibility to raise more debt and can rely on shareholder support if needed.

Rating Outlook

The Stable Outlook on the LT FCR and BSR reflects our expectation that MB will maintain its current overall good financial fundamentals. While key financial parameters may weaken depending on the duration of the current conflict, given the Bank’s intrinsic financial strength, we expect this to be temporary.

Rating Dynamics: Upside Scenario

An upgrade of the BSR and LT FCR, or a revision of the Outlook to Positive, remains unlikely in the near term. However, it could be considered if the Iranian conflict is resolved, the operating environment improves significantly, and the Bank maintains its key financial metrics at current strong levels for a sufficiently long period to convince CI of their robustness.

Rating Dynamics: Downside Scenario

A Negative Outlook or a one-notch downgrade of the Bank’s BSR and LT FCR would occur if key financial metrics weaken. This could result from a significant and sudden deterioration in asset quality and profitability that MB might not be able to rectify within a reasonable timeframe, or a change in our assessment of the support level the Bank receives.


Contact

Primary Analyst: Karti Inamdar, Senior Credit Analyst; E-mail: ...
Secondary Analyst: Darren Stubing, Senior Credit Analyst
Committee Chairperson: Morris Helal, Senior Credit Analyst

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The following information source was used to prepare the credit ratings: public information. Financial data and metrics have been derived by CI from the rated entity’s financial statements for FY2021-25 and Q1 26. CI may also have relied upon non-public financial information provided by the rated entity and may also have used financial information from credible, independent third-party data providers.

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