National Bank of Umm Al Qaiwain – Ratings Affirmed with a Stable Outlook

(MENAFN- Capital Intelligence Ltd) 4 September 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 National Bank of Umm Al Qaiwain (NBQ or the Bank) at ‘A-’ and ‘A2’, respectively. At the same time, CI Ratings has affirmed NBQ’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.

NBQ’s LT FCR is set two notches above the BSR and reflects the ESL of High. CI expects the Bank to receive extraordinary support from the UAE government (sovereign ratings: ‘AA-’/‘A1+’/Stable) in case of need. The government has demonstrated such support in the past and, in CI’s view, has the means and willingness to continue to do so in the future. Additionally, NBQ can also expect support from the government of Umm Al Quwain, a founding shareholder.

NBQ’s BSR is derived from a CFS rating of ‘bbb’ and an operating environment risk anchor (OPERA) of ‘bbb’. The CFS reflects the Bank’s very solid capital ratios (CET1 of 30% in H1 26), which are the highest in the peer group, its strong and sector-best asset quality metrics that have not been affected by the crisis so far, solid credit risk absorption capacity, a long track record of generating good earnings and very comfortable liquidity.

Credit challenges include significant customer concentrations in loans and deposits (including from related parties), sector concentration in real estate, and the Bank’s small size, low market share, and limited business and revenue diversification. The principal challenge facing the Bank remains the volatile geopolitical situation in the Gulf region, including the closure of the Strait of Hormuz, which has clouded the outlook and elevated credit risk. However, 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 announced a series of measures in mid-March 2026 aimed at strengthening liquidity and encouraging banks to support customers wherever necessary.

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.

NBQ’s strategies focusing on expanding its balance sheet and diversifying across various customer segments, products, services, and income streams will significantly strengthen the Bank’s position in a highly competitive market. While growth is expected to continue, the Bank will remain cautious due to crisis-related concerns (this is positive from a credit perspective). The main risk is that the diversification efforts, crucial for enhancing the credit profile, might be delayed because of the downturn. Historically, the Bank has taken a very conservative approach, emphasising capital and liquidity preservation. Despite its smaller size and limited scope, it has consistently generated strong earnings and rewarded shareholders generously. However, it remains one of the smallest commercial banks in the country.

The loan portfolio shows a significant concentration in the real estate sector. NBQ has broadened its customer base to include banks, governments, GREs, large corporates, and multinationals through bilateral deals and syndications. The Bank aims to increase cash flow-based lending, reduce asset-based financing, offer more short-term loans, and improve the risk profile of the credit portfolio. It maintains a high-quality, large portfolio of amounts due from banks, along with a moderate, but expanding, bond portfolio reflecting investments in UAE blue-chip banks and companies. Although customer concentrations in the loan book remain high, they are comparable to those of peer banks.

Asset quality improved notably in 2025 after substantial write-offs, strong recoveries and repayments. Moreover, NPL creation remained low, reflecting tighter underwriting standards with new exposures mainly to governments, banks, GREs, and top-tier companies. The Bank’s NPL and LLR coverage ratios were the best in the banking industry at the end of 2025, and it continued to sustain its sector-leading metrics in H1 26, four months into the regional crisis. The LLR coverage ratio, including impairment reserves held under capital (in line with CBUAE regulations), amounted to a sizeable 614% at the end of the first half of 2026. Stage 2 loans increased slightly in H1 26 but remained moderate at 5.6% of gross loans.

Looking ahead, while NBQ’s NPL ratio is expected to stay low over the next two years, an increase in impairments is anticipated as the CBUAE’s loan deferment scheme concludes in September 2026. The Bank is likely to provide payment deferments to its SME and individual customers, however, the overall exposures to these segments are relatively small and unlikely to significantly affect asset quality. The Bank’s large real estate exposure is currently performing well, but a prolonged downturn could potentially lead to impairments within the portfolio. However, the Bank’s strong credit loss absorption capability, supported by good earnings and a solid capital base, offsets risk from sector and single borrower concentrations within the loan portfolio.

NBQ’s profitability ratios are supported by a wide net interest margin (NIM), efficient cost controls, and low risk charges, partly due to recoveries from previously written-off legacy loans. A key competitive advantage is its low funding cost, achieved through a good CASA ratio, lack of wholesale borrowings and a substantial zero-cost capital base. Although declining benchmark interest rates negatively impacted NIM in 2025 and H1 26, NBQ’s spreads remain high and above the sector median. The Bank also has a small non-interest income (non-II) base with low fee income compared to peers, reflecting the low level of fee-generating activities such as retail banking, transaction banking, and cash management, which are still being developed. NBQ’s operating income, which is largely made up of net interest income (NII), is therefore more impacted by interest rate changes than peer banks, since any NIM compression flows almost directly to total income.

The y-o-y decline in net profit in H1 26 primarily reflects high interest costs (due to a lower CASA ratio) and reduced recoveries of written-off loans compared to H1 25., however, ROAA remained high. The Bank maintains tight cost management and has one of the best cost-to-income ratios. Despite declining, its operating profitability and ROAA are among the highest in the sector. However, we note that income is concentrated in corporate banking, and the Bank’s recurring fee income base is small. Despite these challenges, profitability metrics have proven resilient during difficult periods over time, and we expect the Bank to generate reasonably good revenues and net profit in the full year 2026.

NBQ’s loan-based liquidity ratios have improved in recent years, with deposits increasing faster than loans, and key ratios being stronger than the sector median. The Bank's substantial capital base supports its solid liquidity position. NBQ has high customer concentrations in its deposit base, mainly due to significant deposits from related parties. These deposits have remained stable, even during past periods of liquidity stress. Nonetheless, the Bank would benefit from a more granular and diversified source of funding. Liquidity ratios continued to improve in H1 26, except for the regulator’s Eligible Liquid Asset Ratio (ELAR), which fell to a still high 20%, from 24% at end-2025 and was comfortably above the 10% regulatory minimum. While substantial backstop facilities are available from the CBUAE under the special resilience package (extended to end-September 2026), NBQ has not used these to date. CI expects NBQ to maintain its strong liquidity position.

The Bank’s solid capital ratios, in terms of both quantity and quality, remain a key credit strength. Although they declined between 2023 and 2025, due to a significant increase in risk-weighted assets (RWAs), the ratios are still very high. The H1 26 ratios remained stable, as management took a cautious approach towards loan growth. NBQ’s CET1, Tier 1, capital adequacy, and leverage ratios are the best in the sector, reflecting the Bank’s cautious, risk-averse stance over more than a decade. We expect a measured, gradual decline in capital ratios as the operating environment normalises and growth resumes, but capital will still be more than enough to support the expansion of risk assets and absorb losses in the event of stress. The Bank’s capital ratios are capable of supporting a higher rating than currently assigned and it is the limited franchise and high concentration levels that currently constrain the CFS. The Bank maintains good capital flexibility, with the ability to raise Additional Tier 1 and Tier 2 capital, or issue equity to its supportive shareholders if necessary.

Rating Outlook

The Stable Outlook on the LT FCR and BSR suggests a greater than even chance that the ratings will remain unchanged over the next 12 months. The operating environment stays impaired due to ongoing geopolitical tensions in the region, and the CBUAE’s extension of its ‘resilience package’ until the end of September signals that the authorities do not see the stress as over. However, NBQ has shown resilience throughout the crisis and reported strong results in H1 26.

Rating Dynamics: Upside Scenario

An upgrade in the LT FCR and BSR or a change in the Outlook to Positive over the next 12 months would require an upward revision of the OPERA or a strengthening of the Bank’s credit profile. This could result from significant reductions in customer concentrations, a more diversified business and revenue base, and a considerably larger balance sheet.

Rating Dynamics: Downside Scenario

Though a remote possibility, a one-notch downgrade of the LT FCR and BSR or a change in the Outlook to Negative would be likely if there is a significant deterioration in the operating environment and a substantial weakening of asset quality or profitability that the Bank might not be able to rectify within a reasonable timeframe.


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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