DB - UAE Banks

Middle East United Arab Emirates
Company
Banking
FITT Research
11 April 2010
Fundamental, Industry, Thematic,
UAE Banks: Initiation

Thought-Leading
Deutsche Bank company research
Global Markets Research
product committee has deemed this work

F.I.T.T. for our clients seeking
differentiated ideas. The UAE banks
sector appears unusually cheap in an
international context. We believe this
discount reflects a credibility gap – weak
economic growth and a collapse in real
estate prices have encouraged investors
to price in additional writedowns. We
believe such risks are not spread evenly,
Mind the Gap however.. We see good value in FGB and

NBAD (Buy), while we see downside risk
to ADCB and DIB (Sell). We rate ENBD
Hold.
Fundamental - detailed analysis of asset

carrying values helps to differentiate risk
across the sector
Industry - sharp divergence in prospective

growth is likely between strong and
weak banks
Thematic - optically cheap consensus

multiples reflect writedown risk
Thought-Leading - our valuation has

been flexed for different scenarios. FGB
and NBAD offer good value even under
our stress test
Rahul Shah Ryan Ayache

Research Analyst Research Analyst
(+971) 4 4283-261 (+971) 4 428-3781
rahul.shah@db.com ryan.ayache@db.com
Deutsche Bank AG/London

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
MICA(P) 106/05/2009
Banking
11 April 2010
FITT Research
UAE Banks: Initiation Top picks
Mind the Gap Abu Dhabi Comm Bank (ADCB.AD),AED2.00

Dubai Islamic Bank (DISB.DU),AED2.42
Emirates NBD (ENBD.DU),AED3.06
Sell
Sell
Hold
First Gulf Bank (FGB.AD),AED18.10 Buy
Nat Bank of Abu Dhabi (NBAD.AD),AED12.00 Buy
Rahul Shah Ryan Ayache
Research Analyst Research Analyst Companies featured
(+971) 4 4283-261 (+971) 4 428-3781 Abu Dhabi Comm Bank (ADCB.AD),AED2.00 Sell
rahul.shah@db.com ryan.ayache@db.com 2009A 2010E 2011E
EPS Adjusted (AED)-0.10 -0.37 -0.02
P/E Adjusted (x) -14.3 -5.6 -237.0
Dubai Islamic Bank (DISB.DU),AED2.42 Sell
Fundamental, Industry, Thematic, Thought-Leading 2009A 2010E 2011E
Deutsche Bank company research product committee has deemed this work EPS Adjusted (AED)0.33 -0.12 0.04
F.I.T.T. for our clients seeking differentiated ideas. On consensus numbers, the P/E Adjusted (x) 7.1 -20.4 55.2
Emirates NBD (ENBD.DU),AED3.06 Hold
UAE banks appear cheap in an international context. We believe this discount 2009A 2010E 2011E
reflects a credibility gap – weak economic growth and a collapse in real estate EPS Adjusted (AED)0.59 0.08 0.39
prices have encouraged investors to price in additional writedowns. We believe P/E Adjusted (x) 5.0 39.0 7.9
such risks are not spread evenly, however. We see good value in FGB and NBAD First Gulf Bank (FGB.AD),AED18.10 Buy
2009A 2010E 2011E
(Buy), while we see downside risk to ADCB and DIB (Sell). We rate ENBD Hold. EPS Adjusted (AED)2.06 0.98 1.81
F undamental - detailed analysis

differentiate risk across the sector
of asset carrying values helps to
P/E Adjusted (x) 7.2 14.8 8.8
Nat Bank of Abu Dhabi (NBAD.AD),AED12.00 Buy
2009A 2010E 2011E
We examine in detail the 80% of the banks’ assets where we see impairment risk. EPS Adjusted (AED)1.23 1.24 1.42
Where possible, we adopt a mark-to-market approach. Elsewhere, we isolate key P/E Adjusted (x) 10.5 10.0 8.7
drivers to help differentiate risk across the banks, and also reference against the
Upside/downside to current prices
recent experience of international peers. We believe the key risk to asset quality
arises from real estate-related assets and unsecured retail loans. Reco TP Upside/Downside
Iand
ndustry - sharp divergence in prospective growth is likely between strong
weak banks
NBAD
ADCB
BUY
SELL
14.50
1.75
22%
-10%
Our coverage accounts for over 50% of the UAE banking sector, the largest in the FGB BUY 26.00 44%
GCC. We believe a general process of de-leveraging will constrain the growth of ENBD HOLD 3.50 20%
Dubai-based banks, while Abu Dhabi-based entities will benefit from that Emirate’s DIB SELL 2.00 -15%
sustained fiscal stimulus, and may also have better access to wholesale funding.
We see FGB and NBAD winning market share at the expense of ENBD and DIB.
T hematic - optically cheap consensus multiples reflect writedown risk

With the UAE banks trading at a significant discount to EMEA peers on consensus
This report initiates coverage, changes
ratings, price targets, and/or estimates for
several companies. For a detailed listing of
numbers, we believe the outlook for asset impairments is likely to be a key driver these changes, see Figure 12
of investor sentiment. Low reported NPLs/loans ratios appear inconsistent with
falling real estate values and negative GDP growth. Our analysis leads us to a
baseline assumption that gross writedowns could be 4.6% of bank assets,
equivalent to 27% erosion in tangible common equity.
T hought-Leading - our valuation has been flexed for different scenarios.

FGB and NBAD offer good value even under our stress test
Given uncertainty in the outlook for writedowns, we flex our valuations across
three potential scenarios. ENBD and ADCB shares appear most sensitive to
additional impairments, reflecting unfavourable asset risk vs capital strength
profiles. NBAD and FGB seem less exposed to such volatility, reflecting class-
leading asset quality (NBAD) and significant excess capital (FGB). Indeed, we see
upside risk to both banks' shares even under our stress test scenario.
Valuation adjusted for gross writedowns averaging 4.6% of assets
We value the shares on a target book multiple approach, using 2012 as our
benchmark year, and discounting at the cost of equity, which is based on a 5.0%
RFR (7.0% for ENBD and DIB), 7.0% ERP and beta of 1. Based on our target
prices, the UAE banks trade at a median 1.0x 2010E book value compared with
the global emerging market banks’ median of 1.7x and the MENA banks median of
1.6x. Upside risks include a swifter-than-expected global economic recovery,
which could boost volume growth and asset values, and lower funding costs.
Downside risks include writedowns in excess of those factored into our
valuations.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
MICA(P) 106/05/2009
11 April 2010 Banking UAE Banks: Initiation
Table of Contents
Executive summary ........................................................................... 3

Key investment themes .................................................................... 4
Valuation ............................................................................................ 8
Sensitivity analysis.......................................................................... 15
Asset impairment is likely............................................................... 18
Capital strength ............................................................................... 28
Funding remains tight ..................................................................... 29
Divergent growth outlook .............................................................. 33
Sector forecasts............................................................................... 35
The UAE banking sector.................................................................. 41
Sector and Stock Summaries ......................................................... 46
Nat Bank of Abu Dhabi.................................................................... 48
Abu Dhabi Commercial Bank.......................................................... 52
First Gulf Bank ................................................................................. 56
Emirates NBD................................................................................... 60
Dubai Islamic Bank .......................................................................... 66
Appendix A: Macroeconomic forecasts......................................... 70
Appendix B: Additional detail on writedown calculations .......... 71
Appendix C: Loan quality outlook.................................................. 83
Appendix D: Potential regulatory reform ...................................... 87
Appendix E: Related party transactions ........................................ 90
Page 2 Deutsche Bank AG/London

Executive summary
Outlook
The significant downturn in economic growth and sharp decline in real estate values since
2008 is, in our view, likely to result in additional asset quality issues for the UAE banks. On
average, we believe gross writedowns equivalent to 4.6% of assets are likely, principally
reflecting impairments of the banks’ real estate-related assets (loans and direct holding), retail
loans and Dubai World exposure, resulting in potential erosion of the banks’ tangible
common equity averaging 27%. In our view, equity investors are not discriminating
sufficiently between the asset risk and capital strength profiles of the listed UAE banks.
An additional risk factor pertains to funding. A number of the UAE banks are dependent on
the wholesale markets. Uncertainty generated by Dubai’s heavy refinancing needs could
make it difficult for the banks to tap new sources of funding, which could have negative
knock-on implications for asset growth. However, positive initial market sentiment towards
Dubai World’s debt restructuring proposals and NBAD’s recent USD750m EMTN issue
indicate the door to future issuance has not closed.
We believe the near-term growth outlook for the banks is likely to differ considerably. From a
top-down perspective, we believe strong fiscal stimulus and recovering global growth are
likely to allow Abu Dhabi-based banks to generate substantially stronger volume growth than
their Dubai-based peers, where an environment of de-leveraging is likely to limit credit
growth. Taking account also of entity-specific asset risk, funding and capital strength, we see
FGB and NBAD picking up significant market share.
Overall, we see revenue growth averaging 1% pa in 2010E, 3% in 2011E and 4% in 2012E.

However, due to the likelihood of additional writedowns being posted, we believe sector
profitability is likely to decline sharply in 2010 before recovering sharply in 2011 and 2012.
We expect ROEs to average 15% in 2012. We believe FGB shares are attractively priced
given the company’s strong capital base, flexible cost structure and track record of profitable
market share growth. NBAD shares also appear undervalued given the bank’s conservative
risk management approach and scope to now grow faster than more financially-stretched
peers. Following recent share price rallies, we see downside risk to ADCB and DIB shares.
Valuation
We value the shares on a target book multiple approach, using 2012 as our benchmark year
and discounting at the cost of equity, based on a risk-free rate of 5.0%,(7.0% in Dubai),
equity risk premium of 7.0% and an assumed beta factor of 1.0. We assume a terminal
growth rate of 3.5%.
In relation to conventional valuation multiples, the UAE banks are trading at a 2010E median
P/B of 1.1x. This compares with the MENA banks’ median of 1.6x and global emerging
market banks’ median of 1.7x. We believe these discounts reflect investor fears regarding
future impairments, but believe that investors have yet to differentiate sufficiently between
strong and weak banks. We believe FGB and NBAD offer good value at current levels.
Risks
Key upside risks for the sector include the potential for a stronger-than-expected recovery in
the global economy, which would help to boost oil prices, volume growth, margins and asset
values. Negative risks include the possibility of writedowns in excess of those forecast.
Deutsche Bank AG/London Page 3

Key investment themes

Low consensus multiples reflect asset quality concerns.
Relative to peers, UAE banks appear cheap on consensus expectations. We believe these
seemingly attractive valuations reflect a credibility gap; financial disclosures signalling
generally high levels of asset quality do not sit well with the bubble-bursting experience of
the recent past. Ascertaining the likelihood and extent of any additional required writedowns
is key to determining whether UAE banks really do represent good value at current levels.
Figure 1: PB and ROE – UAE banks vs. EMEA bank peers (2010E consensus)
P/B(x)
2.5
2.0
1.5 NBAD
" Cr edibilit y ga p" FGB

1.0
CBD
ADIB
DIB
UNB
ADCB
0.5 ENBD
0.0
0.0 5.0 10.0 15.0 20.0 25.0
UAE ROE(%) EM EA
Source: Deutsche Bank; Bloomberg consensus for UAE banks Prices as of April9 for UAE banks and 3 April for EMEA banks
We estimate gross writedowns equivalent to 4.6% of assets.

We have analysed the 80% of the banks' balance sheets where we see some risk to carrying
values. Where possible we have used a mark-to-market approach. Elsewhere we have
sought to identify key drivers of asset quality, and also looked at the experience of banks in
other countries that have undergone a similar boom-bust experience. Given inherent
uncertainties, we have conducted our analysis according to three different scenarios. Our
best case assumes current reporting is appropriate, and that the operating environment is on
an improving trend. Our base case, off which our target prices and investment
recommendations are based, is based on a scenario of slight downside risk to collateral
values within the context of a modest recovery in economic growth. Our stress test assumes
a continuation of weak economic conditions, and meaningful downside risk to collateral
values.
Figure 2: Key assumptions and results
Best case Base case Stress test
Real estate prices Stable to rising 5-10% decline 20-25% decline

Projected writedowns 16.6 38.8 66.0
(gross) - AED bn
As % assets 2.0% 4.6% 7.8%
As % shareholders’ 0.0% 27% 61%
equity*
Source: Deutsche Bank * based on net writedowns (i.e. after deducting existing provisioning)

Real estate and retail lending are key areas of risk

We believe real estate-related assets and unsecured retail lending are key sources of
impairment risk. While such assets account for just one-third of all assets, we believe they
will generate around 60% of our projected writedowns. Dubai World exposures could
represent an additional source of risk.
Figure 3: Mix of writedowns by asset class – base case Figure 4: Average haircuts applied – base case
As s oc ia t e Cor por a t e RE % of wr it e downs

25%
inves t m ent s loa ns
3% 20%
DW expos ur es 20%
12%
Ret a il 15%
m or t ga ges
4% 10%
RE inves t m ent s 5%
6%
0%
I nv t & dev
Gov er nm ent
S er v ic es loa ns
Ma nuf a c t ur ing
Mor t ga ge
a s s oc ia t es
Cor p RE loa ns
Tr a ding loa ns
E ner gy loa ns
pr oper t ies
DW expos ur es
uns ec ur ed
Ret a il -
Ret a il-
Ret a il-
Inv in
loa ns
Uns ec ur ed
loa ns
loa ns O t her loa ns
30% 25%
Source: Deutsche Bank Source: Deutsche Bank
Comparing asset risk and loss absorption capacity

Our base case analysis suggests gross asset writedowns could vary from around 2% of
assets at NBAD to over 6% at ADCB and DIB. However, an additional consideration for
investors is how easily such potential losses could be absorbed. Our calculations indicate
that all the banks would be able to absorb our base case writedown estimates from existing
resources, but that only FGB and NBAD would be able to absorb our stress test writedowns
without raising additional capital
Figure 5: : Gross writedowns as % assets, and net Figure 6: Capital cushion relative to loans, assets and
writedowns as % shareholders’ equity – base case our writedown assumptions
7% 50%
Capital cushion relative to:
6%
Loans Assets Estimated w/downs
40%
5% Base case Stress test
4% 30% NBAD 8.7% 6.0% 526% 184%
3% 20%
ADCB 10.8% 8.1% 156% 70%
2% FGB 17.9% 13.3% 385% 184%
10%
1% ENBD 8.6% 6.8% 180% 69%
0% 0% DIB 12.5% 7.4% 123% 59%
NBAD ADCB FGB E NBD DIB
Total 10.8% 7.9% 226% 95%
% of a s s et s (LHS ) % of s ha r eholder s equit y (RH S )
Source: Deutsche Bank Source: Deutsche Bank. Note: calculation takes account of existing provisioning.
Funding will remain an ongoing issue, in our view

Concerns over true value of the banks' assets, combined with the wholesale funding needs
of the banks (the loans/ deposits ratio of the banks in our coverage universe averages 111%)
suggests to us that system funding costs will remain elevated. ADCB and ENBD appear most
exposed to this risk, in our view.

Figure 7: EIBOR versus policy rates Figure 8: Loans to deposits ratio (end-09)
5 (%)
140%
120%
3
2 100%
1
80%
0
Feb-08 Ma y -08 Aug-08 Nov-08 Feb-09 Ma y -09 Aug-09 Nov-09 Feb-10
60%
Repo r a t e E IBO R (6 m ont h) NBAD ADCB FGB ENBD DIB
Source: Deutsche Bank, Bloomberg data Source: Deutsche Bank; Company data
We see a significant split between winners and losers

Asset quality concerns and capital and liquidity constraints will lead to recent growth rate
differentials persisting, in our view. We see NBAD and FGB continuing to win market share at
the expense of rivals.
Figure 9: Market share gained and lost by banks in UAE Figure 10: Asset growth -21010E-2012E
(between 2007 and 2009
3.0% 20%
2.0%
15%
1.0%
10%
0.0%
5%
-1.0%
0%
-2.0%
-5%
-3.0%
NBAD ADCB FG B E NBD DI B Media n
NBAD ADCB FGB E NBD DI B
Loa ns Depos it s 2009A 2010E 2011E 2012E
Source: Deutsche Bank, Company data Source: Deutsche Bank, Company data
The pain is yet to come – weak near-term profitability likely

Our forecasts assume our base case writedown estimates are taken through the income
statements of the banks in 2010 and 2011, resulting in forecast 2010 losses for both ADCB
and DIB. Our projections suggest sector PE multiples will not fall below the GEMs banks
median until 2012.
Figure 11: Valuations multiples at current price
P/E P/B D/Y ROE
Current price 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E
NBAD 11.90 9.6 8.3 6.8 1.5 1.3 1.1 0.8% 1.3% 2.1% 17.2% 17.0% 17.8%
ADCB 1.94 nm nm 7.5 0.7 0.7 0.7 0.0% 0.0% 7.7% -14.2% -0.4% 12.6%
FGB 18.10 18.5 10.0 7.1 1.3 1.2 1.0 2.2% 2.8% 3.3% 9.5% 14.8% 17.9%
ENBD 2.92 37.2 7.6 4.6 0.8 0.7 0.6 1.4% 3.4% 5.1% 2.0% 9.9% 14.7%
DIB 2.35 nm 31.1 6.1 1.1 1.1 0.9 0.0% 2.1% 6.4% -4.4% 3.5% 16.2%
Median 18.5 9.2 6.8 1.1 1.1 0.9 0.8% 2.1% 5.1% 2.0% 9.9% 16.2%
Source: Deutsche Bank; Prices as of 8 April, Bloomberg

Nevertheless we see value in the shares of NBAD and FGB, two banks that should be strong
enough to weather even a severe downturn in the outlook for asset quality. ENBD also
appears attractive, although it remains extremely geared to Dubai's fortunes. We see
downside risk to ADCB and DIB
Figure 12: Target price and recommendations
CP TP Recommendation Upside/Downside Coverage change
NBAD 11.90 14.50 BUY 22% Reinstatement

ADCB 1.94 1.75 SELL -10% Reinstatement
FGB 18.10 26.00 BUY 44% Reinstatement
ENBD 2.92 3.50 HOLD 20% Initiation
DIB 2.35 2.00 SELL -15% Initiation
Source: Deutsche Bank, Bloomberg,
Coming back to our three scenarios, we see upside risk to all shares under our best case,
while only FGB and ADCB offer upside under our stress test.
Figure 13: Upside/downside vs. current prices under our three writedown scenarios
% Ups ide/downs ide

100% (vs c ur r ent pr ic e)
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
Bes t c a s e Ba s e c a s e S t r es s t es t
Source: Deutsche Bank; As of April 8 closing price.

Valuation
Valuation model – key inputs
We value the sector on a target price-to-book multiple approach, using 2012 as our
benchmark year, and discounting at the cost of equity of 12.0% for Abu Dhabi and 14.0% for
Dubai. We arrive at these cost-of-equity assumptions based on a risk-free rate of 5.0% for
Abu Dhabi and 7.0% for Dubai , equity risk premium of 7.0% and beta of 1. We assume long-
term growth to average 3.5%, in line with the IMF’s medium-term inflation expectations. We
also make adjustments to our target price calculations to account for differences in capital
structure.
Reflecting considerable uncertainty regarding the likely extent of writedowns at the banks,
we run three scenarios for the banks under our coverage. Our best case scenario assumes a
normal cyclical recovery from the current period of low growth. Our base case scenario, from
which we derive our target prices, indicates the banks will ultimately record gross
writedowns averaging 4.6% of assets – we have assumed these writedowns are fully taken
through the income statement in 2010 and 2011. Our stress test scenario assumes gross
writedowns averaging 7.8% of assets are taken through the income statement this year and
next.
As these writedowns will erode the capital base of the banks, we assume that the long-term
earnings power of the banks will be reduced commensurately. Our 2012 forecasts
incorporate the impact of this effect.
Target price and recommendations

Our target prices, recommendations, and upside versus the current share price are presented
below.
Figure 14: Target price and recommendations

CP TP Recommendation Upside/Downside
NBAD 11.90 14.50 BUY 22%

ADCB 1.94 1.75 SELL -10%
FGB 18.10 26.00 BUY 44%
ENBD 2.92 3.50 HOLD 20%
DIB 2.35 2.00 SELL -15%
Source: Deutsche Bank, Bloomberg, Prices as of 8 April
At the current share price the UAE banks are trading at 1.1x 2010E book value.
Figure 15: Valuations multiples at current price

P/E P/B D/Y ROE
Current 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E
price
NBAD 11.90 9.6 8.4 7.0 1.5 1.3 1.1 0.8% 1.3% 2.1% 17.2% 16.9% 17.4%
ADCB 1.94 nm nm 7.5 0.7 0.7 0.7 0.0% 0.0% 7.7% -14.2% -0.4% 12.6%
FGB 18.10 18.5 10.0 7.1 1.3 1.2 1.0 2.2% 2.8% 3.3% 9.5% 14.8% 17.9%
ENBD 2.92 37.2 7.6 4.6 0.8 0.7 0.6 1.4% 3.4% 5.1% 2.0% 9.9% 14.7%
DIB 2.35 nm 53.6 7.5 1.1 1.1 1.0 0.0% 2.1% 6.4% -5.9% 2.1% 13.9%
Median 18.5 9.2 7.1 1.1 1.1 1.0 0.8% 2.1% 5.1% 2.0% 9.9% 14.7%
Source: Deutsche Bank; Prices as of 8 April , Bloomberg

At our target price, the UAE banks would be trading at 1.0x 2010E book value.
Figure 16: Valuation multiples at target price

P/E P/B D/Y ROE
Target Price 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E
NBAD 14.50 11.7 10.2 8.5 1.8 1.5 1.3 0.7% 1.0% 1.7% 17.2% 16.9% 17.4%
ADCB 1.75 -39.6 -86.2 6.8 0.7 0.7 0.6 0.0% 0.0% 8.6% -14.2% -0.4% 12.6%
FGB 26.00 26.5 14.4 10.1 1.8 1.7 1.4 1.5% 1.9% 2.3% 9.5% 14.8% 17.9%
ENBD 3.50 44.6 9.1 5.5 0.9 0.9 0.8 1.1% 2.9% 4.3% 2.0% 9.9% 14.7%
DIB 2.00 nm 45.6 6.4 1.0 0.9 0.8 0.0% 2.5% 7.5% -5.9% 2.1% 13.9%
Median 19.1 10.2 6.8 1.0 0.9 0.8 0.7% 1.9% 4.3% 2.0% 9.9% 14.7%
Source: Deutsche Bank, Bloomberg
Valuation multiples international comparison

Looking at traditional valuation metrics for 2010 and 2011, and after factoring in our base
case writedowns, UAE banks as a group no longer appear to be undervalued relative to
international and MENA peers on a PE multiple basis, while lower PB multiples are more than
offset by weaker near-term profitability..
Figure 17: Valuation of UAE banks vs global peers

P/ E (x) P/ BV (x) Dividend Yield (%) ROE (%) US$ Stock Performance
(%)
Company 09A 10E 11E 09A 10E 11E 09A 10E 11E 09A 10E 11E 1M 3M LTM
NBAD 9.7 9.6 8.4 1.7 1.5 1.3 0.8 0.8 1.3 19.6 17.2 16.9 19.1 4.3 54.6
ADCB nm nm nm 0.6 0.7 0.7 0.0 0.0 0.0 -3.6 -14.2 -0.4 24.1 28.0 27.0
FGB 8.8 18.5 10.0 1.3 1.3 1.2 2.8 2.2 2.8 19.0 9.5 14.8 1.4 7.1 98.0
ENBD 4.9 37.2 7.6 0.7 0.8 0.7 6.8 1.4 3.4 16.2 2.0 9.9 23.1 2.4 15.9
DIB 7.4 nm 53.6 1.0 1.1 1.1 6.4 0.0 2.1 13.5 -5.9 2.1 22.4 22.4 14.4
UAE Median 8.1 18.5 9.2 1.0 1.1 1.1 2.8 0.8 2.1 16.2 2.0 9.9 22.4 7.1 27.0
GCC-Median 11.8 9.5 8.2 1.6 1.4 1.3 2.9 3.7 4.5 14.9 13.9 15.4 6.8 10.8 31.5
Mena-Median 10.9 9.6 8.0 1.7 1.6 1.4 2.6 3.3 4.4 15.3 14.4 15.8 3.4 10.8 31.5
EMEA Median 15.2 12.4 9.7 1.9 1.7 1.5 2.8 3.2 3.5 13.8 14.4 15.5 9.0 8.0 104.2
Emerging Asia Median 15.6 13.1 11.2 1.9 1.7 1.5 1.6 2.2 2.4 13.7 15.5 15.4 8.1 4.8 107.7
Latin America Median 14.3 13.0 10.7 2.5 2.2 1.9 2.3 2.8 3.5 20.6 20.2 21.7 2.8 4.2 89.3
GEMS Median 15.4 12.9 10.5 1.9 1.7 1.5 2.1 2.4 3.1 14.0 15.5 16.0 8.2 6.2 107.0
UAE median vs
GCC median -31% 94% 12% -38% -22% -16% 6% 345% 112% 9% -85% -36% 231% -34% -14%
Mena median -26% 93% 15% -41% -28% -22% -10% -11% -3% 6% -86% -37% 560% -34% -14%
EMEA median -47% 49% -5% -46% -32% -25% 8% -4% -20% 17% -86% -36% 148% -11% -74%
GEMS Median -47% 43% -13% -48% -35% -28% -43% -32% -31% 15% -87% -38% 174% 15% -75%
Source: Deutsche Bank Bloomberg estimates; UAE prices are as of April 8t; Other GCC prices are as of 30 March, Latin and EMEA prices as of 3 April

Figure 18: UAE banks (Consensus) vs. EMEA banks – P/B Figure 19: UAE banks (DBE)vs. EMEA banks – P/B versus
versus ROE (2010E) ROE (2010E)
2.50
P/B(x)
2.5
2.00
2.0
1.50 NBAD
1.5 NBAD
FGB
DIB
FGB 1.00
1.0 ENBD
ADCB
DIB
ADCB 0.50
0.5 ENBD
0.00
0.0 -20 -10 0 10 20 30
0.0 5.0 10.0 15.0 20.0 25.0
UAE ROE(%) EM EA UAE ROE(%) EM EA
Source: Deutsche Bank; Prices as of 8 April for UAE banks and 3 April for EMEA banks Source: Deutsche Bank; Prices as of 8 April for UAE banks and 3 April for EMEA banks
Scenario analysis
We believe, the risk of additional writedowns is affecting investor perceptions of the UAE
banks, resulting in the sector appearing cheap on consensus multiples.
In our view, the extent to which writedowns may need to be taken is subject to considerable
uncertainty. For this reason, we have repeated our valuation exercise for a number of
scenarios. Our best case scenario assumes that no additional writedowns need be taken and
that the UAE banks undergo a ‘normal’ cyclical recovery from the recent economic
slowdown. Our stress test assumes that there is a further phase of economic dislocation,
with banks experiencing a pronounced deterioration in asset quality. In our best case
scenario, we see significant upside to all the banks shares, while in our stress test scenario,
we see downside risk to all shares except NBAD and FGB.
Figure 20: Upside/ downside to current share price under our three scenarios
% Ups ide/downs ide

100% (vs c ur r ent pr ic e)
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
Bes t c a s e Ba s e c a s e S t r es s t es t
Source: Deutsche Bank; Current price as of April 9
Current market multiples according to these three scenarios are presented below

Figure 21: PE multiples for three scenarios at current prices

Best case Base case Stress case
2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

CP PE PE PE PE PE PE PE PE PE
NBAD 11.90 8.8 7.2 5.9 9.6 8.4 7.0 19.2 14.6 7.4
ADCB 1.94 11.9 6.5 4.3 nm nm 7.5 nm nm 20.1
FGB 18.10 8.9 6.7 5.5 18.5 10.0 7.1 nm 36.4 8.7
ENBD 2.92 5.0 3.8 3.0 37.2 7.6 4.6 nm nm 10.5
DIB 2.35 6.2 5.8 4.8 nm 53.6 7.5 nm nm 10.3
Median 8.8 6.5 4.8 18.5 9.2 7.1 19.2 20.2 10.3
Source: Deutsche Bank Prices dated April 9,Bloomberg
Figure 22: : PB multiples for three scenarios at current prices

Best case Base case Stress case
CP 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

PB PB PB PB PB PB PB PB PB
NBAD 11.90 1.5 1.2 1.0 1.5 1.3 1.1 1.6 1.5 1.2
ADCB 1.94 0.6 0.5 0.5 0.7 0.7 0.7 1.1 1.5 1.4
FGB 18.10 1.2 1.0 0.9 1.3 1.2 1.0 1.5 1.4 1.2
ENBD 2.92 0.7 0.6 0.5 0.8 0.7 0.6 1.2 1.7 1.5
DIB 2.35 0.9 0.8 0.7 1.1 1.1 1.0 1.6 2.0 1.7
Median 0.9 0.8 0.7 1.1 1.1 1.0 1.5 1.5 1.4
Source: Deutsche Bank; Prices dated April 9, Bloomberg
The following chart illustrates the impact of the three scenarios on the UAE banks P/B
multiples, based on our 2011 estimates. Our calculations indicate that higher writedowns can
rapidly shift a sock from cheap to expensive territory, with ADCB,DIB and ENB appearing
most exposed to this effect.
Figure 23: 2011E P/B multiples under our three different scenarios
2.3
2.1
Stress test
1.9
1.7
1.5
PB(x)
1.3
Base
1.1
case
0.9 Best
0.7 case
0.5
-37.50 -27.50 -17.50 -7.50 2.50 12.50 22.50
ROE(%)
EMEA NBAD ADCB FGB ENBD DIB

Source: Deutsche Bank
Share price performance

Relative to their global markets peers, the UAE banks have significantly underperformed over
the past 12 months. Relative to their GCC peers; Dubai-based banks have underperformed

while Abu Dhabi banks have been broadly in line. FGB has clearly been the strongest
performer in our universe over the period.
Figure 24: Last 12-months’ performance – Dubai banks Figure 25: UAE banks – last 12 months’ share price
have lagged global peers significantly performance
150 (%) 100%
130 90%
110 80%
90 70%
70 60%
50 50%
30 40%
10 30%
-10 20%
E ME A La t in E m er ging Qatar KS A ADX Kuwa it DFM 10%

Ba nking Am er ic a As ia Ba nking Ba nking Ba nking Ba nking Ba nking
0%
s ec t or Ba nking Ba nking s ec t or s ec t or s ec t or s ec t or s ec t or
NBAD ADCB FGB E NBD DIB
s ec t or s ec t or
Source: Deutsche Bank, Bloomberg; prices as of 9t April 2010; GCC based on BB bank index, LATAM, Source: Deutsche Bank, Bloomberg;9h April 2010
EMEA,EA based on Deutsche Bank coverage universe
Year-to-date, the UAE banks have underperformed regional and EMEA peers. ADCB and DIB
have been the strongest performers in our universe.
Figure 26: Year-to-date share price performance Figure 27: Year-to-date share price performance
(%) (%)
20 35%
30%
15
25%
10
20%
5 15%
10%
0
Kuwait Qatar KSA EMEA ADX DFM Latin Emerging 5%
Banking Banking Banking Banking Banking Banking America Asia
sector sector sector sector sector sector Banking Banking 0%
sector sector ADCB DI B FGB E NBD NBAD
Source: Deutsche Bank, Bloomberg; prices as of 8 April 2010; GCC based on BB bank index, LATAM, Source: Deutsche Bank; Bloomberg Price dated April 9
EMEA,EA based on Deutsche Bank coverage universe
Comparison of Dubai and Abu Dhabi banks’ performance

Over the past 18 months or so Dubai-based banks have significantly underperformed their
Abu Dhabi-based peers. This trend largely mirrors that of the DFM and ADX markets, and
likely reflects the weaker financial position of Dubai relative to its wealthier neighbour.
Indeed, it is interesting to note that, despite widespread concerns regarding writedowns, the
banks sector has not significantly underperformed the broader market in either emirate; we
believe this reflects the heavy weighting of real estate in both indices.

Figure 28: Bank index performance relative to the Figure 29: DFM performance relative to ADX
general index
130 110
120 90
110
70
100
50
90
30
80 J a n-08 Apr -08 J ul-08 O c t -08 J a n-09 Apr -09 J ul-09 O c t -09 J a n-10
J a n-08 Apr -08 J ul-08 O c t -08 J a n-09 Apr -09 J ul-09 O c t -09 J a n-10
Ba nks r ela t ive index Gener a l r ela t ive index
DFM Ba nks ADX Ba nks
Source: Deutsche Bank; Bloomberg data. Rebased to 100 at 1/1/08 Source: Deutsche Bank, Bloomberg data. Rebased to 100 at 1/1/08
The significant underperformance of the Dubai banks relative to their Abu Dhabi peers may
prompt ideas of rotation into these names. However, we would highlight that we may still
only be near the beginning of the writedown cycle, to which ADCB, ENBD and DIB may be
most exposed. On our 2011E numbers, FGB and NBAD appear to offer superior value to DIB
and ADCB in particular.
International experience suggests significant performance differentials can persist

The significant underperformance of the Dubai-based banks relative to their Abu Dhabi-based
neighbours and international peers combined with valuation multiples that appear low (at
least on a pre-writedowns basis) could be used to support arguments favouring these banks.
However, the recent experience of other banking systems that have also had to work through
the effects of asset quality deterioration indicates that performance differentials between the
strongest and weakest banks can be large and sustainable. Since the beginning of the credit
crisis, the strongest US and UK banks have broadly retained their value, while the weaker
banks are at around 10-20% of their pre-crisis levels, despite receiving significant amounts of
government support.
Figure 30: Share price performance of selected US Figure 31: Share price performance of selected UK
banks banks
140 120
120 100
100
80
80
60
60
40
40
20 20
0 0
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10
Wells Fargo JP Morgan Citibank Bank of America Lloyds RBS Barclays HSBC
Source: Deutsche Bank; Bloomberg. Rebased to 100 at 1/1/07 Source: Deutsche Bank; Bloomberg. Rebased to 100 at 1/1/07
In our view, NBAD and FGB are the strongest of the UAE banks in our coverage universe,
reflecting higher quality assets combined with superior capital and funding strength. With
UAE banks in our view yet to fully recognise the extent of asset impairment that has taken
place, we believe the outperformance of both of these banks will persist. We note that both
banks shares remain below the pre- crisis levels.

Figure 32: UAE banks share price performance
150
125
100
75
50
25
0
Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10
NBAD ADCB FGB ENBD DIB
Source: Deutsche Bank; Bloomberg. Rebased to 100 at 1/1/08.
Risks
Positive risks
The key positive risks to our forecasts would include a more positive global growth
environment, which would be supportive for oil prices and overall economic activity in the
UAE. Such an environment would be conducive to improved revenue growth for the banks,
and would also be supportive of loan quality, which in turn could result in lower-than-forecast
loan impairment charges.
We believe rising interest rates would also be a positive factor for the banks, as this could
help to support higher net interest margins.
Rising equity markets would help banks with significant capital market operations, and would
also have a modest positive impact on investment portfolio returns.
A long-term resolution of Dubai’s debt refinancing needs would also be viewed positively by
investors in the sector, as it would help the banks to secure additional funding, and would
support resumption in corporate activity levels and employment growth.
Downside risks
The key negative risks include the potential for UAE economic growth to fall short of our
forecasts, either as a result of a weaker global environment, refinancing difficulties for Dubai
or a lower-than-expected fiscal stimulus from Abu Dhabi.
Higher than expected writedowns could put pressure on funding and capital strength, as well
as reducing the earnings potential of the sector.

Sensitivity analysis
In Figure 33 we present key sensitivities in relation to earnings and shareholders’ equity. FGB
appears least exposed to fluctuations, reflecting its higher profitability and capital strength.
ADCB is most geared to assumption changes, reflecting its current depressed financial
performance.
Figure 33: Sensitivity analysis – net income and shareholders equity

Risk factor Balance sheet Net interest Operating costs Loan loss provisions Investment portfolio impairments
volume growth margin
Potential Shift 1% increase 10bps increase 1% point Additional 1% of loan book 1% of carrying value
increase
Impact on: Net income Net income Net income Net income Shareholders' Net income Shareholders'
equity equity
NBAD 1.9% 5.7% -0.6% -40% -6.4% -6.0% -1.0%

ADCB 4.0% 10.6% -1.0% -79% -9.5% -3.2% -0.4%
FGB 1.8% 3.9% -0.3% -30% -5.0% -4.6% -0.8%
ENBD 3.2% 8.3% -1.2% -63% -7.0% -5.7% -0.6%
DIB 2.8% 7.0% -1.2% -41% -5.4% -8.4% -1.1%
Median 2.8% 7.0% -1.0% -41% -6.4% -5.7% -0.8%
Source: Deutsche Bank Based on the impact to our base case 2012 forecasts
In Figure 34 we present the sensitivity of our target price calculation to changes in the value
of key inputs.
Figure 34: Sensitivity analysis – target price

Measure Equity Risk Terminal growth
Risk free rate Beta factor 2012 ROE
premium rate
Change 100bps increase 100bps increase 0.1 increase 100bps increase 100bps increase
Impact on target price:
NBAD -10% -8% -8% 4% 7%
ADCB -13% -10% -10% 0% 13%
FGB -9% -7% -7% 4% 6%
ENBD -9% -8% -8% 1% 10%
DIB -8% -7% -7% 1% 9%
Median -9% -8% -8% 1% 9%
In Figure 35 we also present key sensitivities to the bank’s real estate-related assets.
Figure 35: Sensitivity analysis – real estate price and Dubai World exposures
Risk factor Real estate prices Dubai GRE exposure
Potential Shift 10% drop 10% additional write-down

Impact on: Equity Equity
NBAD 11% 0.5%

ADCB 17% 6.0%
FGB 11% 0.9%
ENBD 14% 6.9%
DIB 17% 5.6%
Median 13% 3.9%

Finally, in Figure 36 we highlight the sensitivity of our target price calculation to each AED1bn
of writedown in excess of our base case forecasts.
Figure 36: Sensitivity analysis – writedowns vs. base case (AED)

Writedowns versus base case (AED)
-2bn -1bn 0 +1bn +2bn
NBAD 9% 4% 0% -4% -9%

ADCB 20% 10% 0% -10% -20%
FGB 6% 3% 0% -3% -6%
ENBD 18% 9% 0% -9% -18%
DIB 18% 9% 0% -9% -19%
Median 18% 9% 0% -9% -18%
What level of writedowns are currently being priced in by equity

investors
We have highlighted previously that the low multiples at which the UAE banks are currently
trading appear to signal a credibility gap in relation to published asset quality. In the following
table we present our assessment of what level of writedowns currently appear to be priced
in by the market, and how these writedowns compare to current assets, loans and equity,
and also to our own base-case assumptions.
Figure 37: Stock prices are currently factoring in writedowns equivalent to 6% assets
Implied writedowns (gross) Implied writedowns (net)
AEDm as % assets As % equity As % base case

w/downs
NBAD 7779 4.0% 31% 297%
ADCB 9449 5.9% 35% 93%
FGB 12450 9.9% 54% 270%
ENBD 16173 5.7% 50% 142%
DIB 4357 5.2% 27% 69%
Total/ average 50208 5.9% 42% 151%
Source: Deutsche Bank Company data, Based on April 8th price
Scenario analysis
We present ranking of the bank’s relative exposure to potential key events that could have a
significant impact on investor perception of the UAE banks over the coming months. While
sentiment towards the sector is currently depressed, cheap valuations suggest any positive
news flows in the following areas could be rewarded with very strong share price
performance.
The analysis in Figure 38 shows that banks with a high ranking would be expected to
outperform in the event of a positive outcome to the various scenarios presented.

Figure 38: Key scenario analysis

Scenario Key Indicator/ Rank NBAD ADCB FGB ENBD DIB Comment
Favourable Dubai World debt DW debt exposure/ equity 1.1% 12.0% 1.9% 13.7% 10.8% Market estimates have ranged from
restructuring a 0% to 40% haircut
Rank 1 4 2 5 3
Re-opening of debt issuance Debt maturing in 2010-12 3.4% 11.7% 4.3% 5.6% 2.9% NBAD recently issued a USD750m
markets (as % assets) 5-yr bond
Rank 2 5 3 4 1
Easing of banking system Loans/ deposits ratio* 114% 135% 105% 125% 78% EIBOR has tracked up from 1.95%
liquidity strains in Dec-09 to 2.25%
Rank 3 5 2 4 1
Recovery of real estate market Real estate assets**/ 188% 247% 170% 217% 253% Deutsche Bank proprietary property
equity index has declined by ~60% since
Aug-08
Rank 2 4 1 3 5
Source: Deutsche Bank; Company data. * Excluding Ministry of Finance Tier 2 deposits. **RE loans and direct holdings of RE assets, FGB RE loans exclude loans to National housing scheme.

Asset impairment is likely

We believe the key reason that UAE banks are trading at a significant discount to regional and
international peers is that investors believe additional asset impairments will need to be
recorded. We believe such fears are justified given the recent historical context:
Rapid balance sheet expansion in prior years – banking sector lending increased by
CAGR of 34% from 2004 to 2008. This rapid pace of credit growth may have encouraged
the banks to take on bad risks, which may only now come to light. A loans/ GDP ratio of
122% suggests gearing levels across the economy remain high.
A sharp decline in local real estate prices. We estimate UAE real estate prices are now
50-60% below peak levels achieved in Q308. With more supply due to come on stream
in the coming months, a meaningful recovery in prices appears unlikely.
A more general downturn in economic activity. After averaging over 13% per year over
the preceding five years, real GDP growth slowed to 7.4% in 2008 and an estimated
decline of (1.2%) in 2009. This sharp slowdown could have taken borrowers by surprise,
resulting in weakened cash flows and debt-servicing difficulties.
The prospect of addressing Dubai’s well-documented debt problems is likely to result in
a process of de-leveraging for government and related entities, which in turn could lead
to more generally depressed activity levels.
Figure 39: UAE banking sector loan growth history Figure 40: UAE real GDP growth – history and forecast
1,200 AE Dbn 18 (%)
1,000 15
800 12
a ver a ge gr owt h r a t e
exc es s c r edit
600 9 7.5%
400 6
a ver a ge t r end
gr owt h r a t e 24%
200 3
- 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2001 2003 2005 2007 2009E 2011F
-3
Source: Deutsche Bank; Central bank data Source: Haver Analytics, IMF, Deutsche Bank Global Markets Research
Where are the risks?

We believe asset impairments are likely to be concentrated in a few areas: real estate-related
assets, unsecured retail lending and Dubai World exposure together account for just 40% of
total assets but generate 75% of our expected writedowns.

Figure 41: Asset mix and writedown mix – base case Figure 42: Asset mix and writedown mix – stress test
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
As s et m ix Wr it edown m ix As s et m ix Wr it edown m ix
Ret a il- uns ec ur ed loa ns O t her loa ns Cor por a t e RE loa ns Ret a il- uns ec ur ed loa ns O t her loa ns Cor por a t e RE loa ns
DW expos ur es I nvt & dev pr oper t ies Ret a il- m or t ga ges DW expos ur es I nvt & dev pr oper t ies Ret a il- m or t ga ges
I nv in a s s oc ia t es O t her a s s et s I nv in a s s oc ia t es O t her a s s et s
We consider three distinct scenarios

The precise extent of asset writedowns that will ultimately need to be taken by the banks is
extremely difficult to determine. Moreover, our target price estimates for the banks under our
coverage are extremely sensitive to our writedown assumptions. For this reason, we present
three potential scenarios for each of the banks under our coverage: current reporting
(representing a best case), base case and stress test. Our target prices are based on our
base-case scenario.
Key assumptions underlying each of these three scenarios and the writedown implications
are summarised below.
For our best case scenario, we assume that existing carrying values are appropriate.
For our base case scenario, we apply haircuts to various asset classes varying from slightly
over 20% against carrying values of investment and development properties to 3-4% on non-
real estate-related corporate lending, and 0% against sovereign (as opposed to government-
related entity) exposures. Our haircuts average 5% across the overall asset base.
For our stress test scenario, haircuts applied range from 35% down to 4% (8% average).
Note that the writedowns vary from bank to bank according to our applied methodology, as
detailed below, but are on average equivalent to 8% of assets.
Figure 43: Average haircuts applied – base case Figure 44: Average haircuts applied – stress test
% of wr it e downs 40% % of wr it e
25%
downs
20% 30%
15%
20%
10%
10%
5%
0%
0%
Inv t & dev
Gov er nm ent
S er v ic es loa ns
uns ec ur ed
Ma nuf a c t ur ing
Mor t ga ge
Cor por a t e RE
a s s oc ia t es
DW expos ur es
pr oper t ies
T r a ding loa ns
E ner gy loa ns
I nv t & dev
Gov er nm ent
S er v ic es loa ns
Ma nuf a c t ur ing
Mor t ga ge
a s s oc ia t es
Cor p RE loa ns
Tr a ding loa ns
E ner gy loa ns
pr oper t ies
DW expos ur es
Ret a il-
uns ec ur ed
Ret a il
Inv in
Ret a il-
loa ns
Ret a il-
Inv in
loa ns
loa ns
loa ns
loa ns

On average we see gross writedowns being equivalent to 4.6% of assets and 27% of
shareholders’ equity (net of existing provisions) in our base case. For our stress test, these
figures rise to 7.8% and 61% respectively.
Figure 45: Key assumption and results

Best case Base case Stress test
Real estate prices Stable to rising 5-10% decline 20-25% decline

Projected writedowns 16.6 38.8 66.0
(gross) - AED bn
As % assets 2.0% 4.6% 7.8%
As % shareholders’ 27% 61%
equity*
Source: Deutsche Bank* After netting off existing provisioning
A summary of our base case writedown expectations by bank are presented below.
Writedowns are viewed as most significant for ADCB and DIB, less so for NBAD.
Figure 46: Gross writedowns mix by asset class – base Figure 47: Gross writedowns as % assets, and net
case writedowns as % shareholders’ equity – base case
100% 7% 50%
6%
80% 40%
5%
60% 4% 30%
40% 3% 20%
2%
20% 10%
1%
0% 0% 0%
NBAD ADCB FGB E NBD DI B NBAD ADCB FGB E NBD DIB
Cor por a t e RE loa ns Ret a il- m or t ga ges O t her loa ns
Invt & dev pr oper t ies Inv in a s s oc ia t es DW expos ur es
Ret a il- uns ec ur ed loa ns % of a s s et s (LHS ) % of s ha r eholder s equit y (RH S )
Under our stress test scenario, the mix of writedowns and their relative magnitude are
presented below. Again, our calculations point to ADCB and DIB being more at risk, while
NBAD’s asset base appears less exposed. We believe ADCB, ENBD and DIB could require
capital injection under a stress test scenario.

Figure 48: Writedowns mix by asset class – stress case Figure 49: Gross writedowns as % assets, and net as %
shareholders’ equity, for the five banks – stress case
100% 14% 100%
12%
80% 80%
10%
60% 8% 60%
40% 6% 40%
4%
20% 20%
2%
0% 0% 0%
NBAD ADCB FGB E NBD DI B NBAD ADCB FGB E NBD DI B
I nvt & dev pr oper t ies I nv in a s s oc ia t es DW expos ur es % of a s s et s (LHS ) % of s ha r eholder s equit y (RH S )
Ret a il- uns ec ur ed loa ns
Writedown calculations – summary of methodology employed

We highlight below the methodology we have employed in arriving at our potential
writedown assumptions. Real estate-related exposures and unsecured consumer lending are
likely to contribute 60% of writedowns, according to our calculation. Other corporate lending
is also likely to play an important role in overall asset quality. Additional details are provided in
Appendix B.
Real estate-related exposures

Both Dubai and Abu Dhabi have experienced a significant decline in real estate values over
the past year or so. While the market is clearly not homogeneous (freehold areas open to
foreign investors have probably experienced more price volatility than those areas open only
to GCC nationals; local price variability is also high), we believe broader price indices can be
helpful in establishing the overall extent of writedown risk and relative risk between the
various banks.
In particular, we believe the timing of when an exposure is taken on is an important

determinant of writedown risk – those assets acquired when real estate values were close to
their peak levels are more likely to require downward adjustments than exposures taken on a
long time ago or even those assumed most recently.

Figure 50: Dubai price index (Q308 rebased to 100)
110
90
70
50
30
Q 404
Q 205
Q 405
Q 206
Q 406
Q 207
Q 407
Q 208
Q 408
Q 209
Q 409
La ndm a r k Collier s DB
Source: Deutsche Bank; Landmark; Colliers
For the purposes of our analysis, we have chosen to adopt the Landmark price index as our
benchmark. This has shown a less volatile trajectory than our own in-house index, but the
overall peak-to-trough decline is nevertheless significant at 50% (in contrast, the Deutsche
Bank proprietary price index shows a 60% peak to trough decline). While the index ostensibly
relates to Dubai, we believe price trends in Abu Dhabi have exhibited a similar pattern. Note
that our base-case scenario is based on an additional 5-10% decline in the real estate values
from current levels (a 20-25% decline from current levels is factored in to our stress test).
For the banks’ direct holdings of real estate assets, we take a direct mark-to-market
approach, using the cost of acquisition as the benchmark value (and subsequently re-basing
this values upwards/ downwards in line with the overall Landmark index) rather than relying
on the banks’ own periodic fair value assessments.
In order to determine potential losses from real estate lending, we take a two-pronged
approach. First, we estimate we compare the value of the collateral with that of the loan.
Secondly, we try to factor in the risk that a project is not completed or remains unsold. In
such cases it may prove difficult for banks to achieve full recovery even if collateral is taken
over. We believe this is a meaningful risk – MEED data suggests around one-third of
construction projects in the UAE have been put on hold; data from Arabtec and DSI suggests
developers are struggling to make good on their contractual payments, which is strongly
indicative of weak end user demand and/or project abandonment risk.

Figure 51: On hold projects (as a percentage of ongoing Figure 52: Percentage of Arabtec receivables classified
projects) as past due, impaired or provided against
35% 75%
30%
60%
25%
45%
20%
30%
15%
10% 15%
5%
0%
0% 2006 2007 2008 2009
Qatar Oman KS A Kuwa it Ba hr a in U AE P a s t due but not im pa ir ed Im pa ir ed P r ovis ions
Source: Deutsche Bank, Meed Source: Deutsche Bank, Company data
To determine the writedown risk to the banks from potential non-completion of real estate
projects, we employ a simple probability tree to determine what proportion of projects in
good and bad locations would be completed, partially completed, and unsold.
After factoring in both these effect (changes in real estate values, and probability of project
completion) we apply a 75% discount to our loss estimate to take account of the likelihood
that some borrowers will continue to service loans even if they are in a negative equity
situation.
In Figure 53 we summarise the approach taken to estimate writedowns for various real
estate-related asset categories.
Figure 53: Approach employed to determine writedowns

Asset category Typical weight (as % assets) Approach employed to determine
writedowns
Corporate real estate 14.1% Market to market from loan inception, with
loans project completion probability overlay
Loans to contractors 3.4% Writedown estimates based on loan ageing
Retail mortgages 1.7% Mark to market from loan inception, with
project completion probability overlay
Investment and 1.1% Mark to market from acquisition date (rather
development than relying on the banks' own fair value
properties estimates)
Source: Deutsche Bank, Company data
In Figure 54 we summarize the potential writedowns on each category of real estate-related

exposure under our base-case scenario.
Figure 54: Potential writedowns in corporate RE and mortgage loan segments – base
case
AEDm Corporate real
Retail mortgages Total as % RE loans as % total assets
estate*
NBAD 1,947 134 2,081 6.7% 1.1%
ADCB 1,508 651 2,159 5.9% 1.3%
FGB 1,418 199 1,616 6.4% 1.3%
ENBD 2,042 378 2,420 5.2% 0.9%
Source: Deutsche Bank; Company data. * including contractor loans

Although the carrying values of investment and development properties are small relative to
the overall balance sheet, we believe the balances could be subject to significant
impairments.
Figure 55: Potential writedowns against investment and development properties –

base case
AEDm Investment Development as % carrying
Total as % total assets
properties properties value
NBAD 0.0%
ADCB 235 235 43% 0.1%
FGB 1,013 1,013 17% 0.8%
ENBD 333 333 47% 0.1%
DIB 513 136 650 26% 0.8%
Source: Deutsche Bank; Company data
Other lending
Real estate-related loans typically comprise 26% of the total loan portfolio for the banks
under our research coverage i.e. the vast majority of the UAE banks’ loans do not have direct
links to the real estate market.
Figure 56: Loan mix by economic sector

AED m as a % of AED m as a % of AED m as a % of AED m as a % of AED m as a % of

loans loans loans loans loans
Government loans 16,733 12% 1,569 1% 13,117 14% 49,168 22% 4,182 8%
Corporate real estate 29,421 22% 32,588 27% 23,598 25% 42,121 19% 20,969 40%
Manufacturing 6,871 5% 2,578 2% 2,670 3% 9,202 4% 10,244 20%
Services 33,980 25% 43,456 36% 15,051 16% 51,173 23% 4,643 9%
Energy 14,766 11% 3,356 3% 438 0% 22,572 10% - 0%
Trading 8,540 6% 1,475 1% 4,658 5% 22,528 10% 3,559 7%
Retail - mortgages 1,423 1% 3,940 3% 1,848 2% 4,410 2% 2,897 6%
Retail - unsecured loans 23,841 18% 31,879 26% 31,535 34% 20,090 9% 5,380 10%
Total loans 135,574 100% 120,841 100% 92,915 100% 221,264 100% 51,873 100%
Source: Deutsche Bank; Company data Note: ENBD trading sector loans includes SME loans.
However, given the importance of real estate to the UAE economy (the sector is thought to
employ almost one-third of the UAE work force, for example), negative trends in this area are
likely to be reflected more broadly across the banks’ loan portfolios. For other lending, we
believe there are four key risk drivers:
Sector mix – We believe certain sectors (such as unsecured lending to individuals) carry
a higher risk of impairment than others.
Geographic mix – The economic downturn has hit Dubai harder than Abu Dhabi, and we
adjust for this in our loan quality forecasts.
Loan ageing – We regard lending extended during the later part of the UAE’s growth
spurt (particularly 2008) as more at risk of impairment than loans granted previously
(which have also had more time to season) and more recent credit (due to the sharp
post-boom tightening of underwriting standards).
Track record – Certain banks may have an inferior loan quality track record than others
due to differences in risk appetite and risk management — we believe such differences
are likely to persist.
Our base case assumptions regarding the level of potential writedowns by each loan
category are presented in Figure 57.

Figure 57: Gross writedowns on loans – breakdown by economic sector (base case)
AEDm NBAD ADCB FGB ENBD DIB
W/down Mix W/down Mix W/down Mix W/down Mix W/down Mix
Government loans 0 0% 0 0% 0 0% 0 0% 0 0%
Corporate real estate 1,947 46% 1,508 17% 1,418 29% 2,042 20% 825 23%
Manufacturing 124 3% 113 1% 63 1% 376 4% 598 17%
Services 585 14% 1,788 20% 340 7% 2,283 22% 276 8%
Energy 161 4% 132 1% 14 0% 813 8% - 0%
Trading 207 5% 160 2% 140 3% 1,460 14% 453 13%
Retail mortgages 139 3% 595 7% 199 4% 436 4% 222 6%
Retail unsecured 1,082 25% 4,709 52% 2,713 56% 2,832 28% 1,179 33%
Total 4,244 100% 9,005 100% 4,887 100% 10,243 100% 3,554 100%
As % of total loans 3.1% 7.5% 5.3% 4.6% 6.9%

Our calculations indicate a key driver of loan impairments is retail lending. Disclosures by
ENBD, ADCB and RAK Bank (whose loan book is 98% retail) indicated that the quality of
these portfolios deteriorated in 2009. We further note evidence from the UAE Ministry of
Justice, indicating that 6% of cheques presented to banks in first four months of 2009 had
bounced. In our view, double-digit levels of writedowns from retail exposures are likely.
Figure 58: ENBD and ADCB retail NPLs / retail loans Figure 59: RAK Bank – NPLs and past due but not
impaired loans as % total loans
12% 10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0% 0%
2008 2009 2008 2009
E NBD ADCB NP L/ loa ns P a s t due not im pa ir ed/ loa ns
Dubai World exposure

One area of risk that has come sharply into focus in recent months relates to the banks’
exposures to entities related to (but not guaranteed by) the Dubai government. After
declining sharply towards the end of 2009, Dubai GRE bond prices appear to have improved
significantly in recent weeks, in line with a recent tightening of CDS spreads. The positive
reaction to Dubai World’s recent debt restructuring programme also augers well.

Figure 60: Dubai World bond prices Figure 61: Regional CDS spreads – Dubai, Abu Dhabi,
Qatar, KSA
100 bps
500
90 400
300
80
200
70
100
60
0
J a n-09 Ma r -09 Ma y -09 J ul-09 S ep-09 Nov-09 J a n-10 Ma r -10
Duba i Abu Dha bi Qatar S a udi Ar a bia
Source: Deutsche Bank; Bloomberg Note: Series generated from average price of ten bond securities issued Source: Deutsche Bank; as of March 28 t 2010; Bloomberg
by various Dubai GRE’s. Prices as of 28 March 2010
Despite the recent Dubai World announcement, disclosure in this area is relatively poor, both
in terms of the extent and nature of exposure that the banks have, and the precise nature of
the DW restructuring. Our assumptions in relation to Dubai World exposures, and the
potential writedowns required, are presented in Figure 62.
For our base case, we have assumed a 15% haircut, a slight discount to the composite of
bond prices presented above, reflecting the strong likelihood that the banks’ loans will
mature subsequent to bondholders and certain other creditors being repaid. In our stress-test
scenario, we assume that a 35% haircut is required
Figure 62: Dubai World – base case writedown assumptions

Total exposure Potential losses
AEDm AEDm as % Dubai GRE as % total assets

exposure
NBAD 900 135 15% 0.1%
ADCB 9,000 1,350 15% 0.8%
FGB 1,750 263 15% 0.2%
ENBD 13,500 2,025 15% 0.7%
DIB 5,000 750 15% 0.9%
Investments in associates
Averaging 1.4% of total assets for our coverage universe, the UAE banks’ associate
investments are equity-accounted, meaning that the banks would not need to adjust the
carrying value of these assets downwards unless there appeared to be a permanent
diminution in value. For example, we note that ENBD wrote down the value of its 48% Union
Properties stake by 316m (13%) in Q409.
In order to determine the risk of further impairment in the asset class, we have compared the
carrying value of associate investments to their market value wherever possible. For unlisted
investments, we have assumed that the current market value would be half the carrying value
for Dubai-based banks and two-thirds of the carrying value for the Abu Dhabi-based entities.
These values are based on the current value of the DFM and ADX general indices versus their
five-year averages.
In our base-case scenario, we have assumed a writedown of associate investments

equivalent to 20% of the estimated gap between carrying value and current market value. In
our stress-test scenario we have assumed a writedown equivalent to 40% of this estimated
gap. DIB, is most affected by these adjustments.

Figure 63: Potential writedowns on associates – base case

Key listed associates Other associates Total
associates
Carrying Market Carrying Estimated Difference in % Potential % of total

value value value market value carrying and writedown writedown assets
market values applied
NBAD - - - - - 20% - 0.00%
ADCB 4,475 3,285 108 72 1,226 20% 245 0.15%
FGB - - 561 374 187 20% 37 0.03%
ENBD 2,442 833 3 1 1,610 20% 322 0.11%
DIB 3,222 1,242 1,074 537 2,516 20% 503 0.60%
Source: Deutsche Bank Company data. * Includes RHB Capital for ADCB, UPP for ENBD, Deyaar and Tamweel for DIB.

Capital strength
Given our view that the UAE banks’ assets could be subject to significant additional
impairments, we regard capital strength as a key area of relevance for investors.
While the Abu Dhabi banks and ENBD have been recipients of tier 1 capital injections that
have boosted their tier 1 ratios to high levels, we view tangible ordinary equity as a key
indicator of capital strength, as this is the capital that would initially bear losses arising from
any asset writedowns.
Figure 64: Key capital ratios for the banks (end-09)

Tangible equity/ Equity/ assets Tier 1 ratio Capital adequacy
assets ratio
NBAD 8.3% 10.4% 16.0% 17.6%

ADCB 9.4% 11.9% 12.4% 17.4%
FGB 14.8% 17.9% 19.2% 22.6%
ENBD 7.8% 11.3% 13.2% 20.8%
DIB 10.6% 10.6% 12.7% 17.5%
Median 9.4% 11.3% 13.2% 17.6%
Below, we present the level of writedowns that would need to take place in order to bring
these capital ratios to key floor levels.
Figure 65: Capital cushion/ loss absorption capacity

AEDm Tangible equity/ Equity/ assets Tier 1 ratio Capital Median
assets adequacy ratio
Floor level 4% 6% 8% 12%
NBAD 8848 9263 11586 8449 9055

ADCB 8994 10164 6554 8543 8769
FGB 14084 15940 14211 13972 14147
ENBD 11038 16038 11472 20083 13755
DIB 5804 4194 3689 4450 4322
Median 8994 10164 11472 8543
We then compare the median capital cushion calculated above against various indicators of
risk. On average, and after taking account of exisiting provisioning, the banks could afford to
write down 11% of their loans or 8% of their assets before becoming capital constrained.
The capital cushions are typically 1.9x our base case estimate of losses, and broadly in line
with our stress-test scenario. Note that the ability to spread losses over time would
significantly enhance each bank’s loss absorption capacity (as retained profits would boost
reserves).
Our analysis suggests that FGB is most comfortably positioned from a loss absorption
capacity perspective, ENBD and ADCB less so.
Figure 66: Capital cushion relative to loans, assets and our writedown assumptions
Loans Assets Base case Stress test
writedowns writedowns
NBAD 9055 8.7% 6.0% 473% 184%
ADCB 8769 10.8% 8.1% 126% 70%
FGB 14147 17.9% 13.3% 369% 184%
ENBD 13755 8.6% 6.8% 142% 69%
DIB 4322 12.5% 7.4% 123% 59%
Median 50049 10.8% 7.9% 193% 95%

Funding remains tight

With Dubai’s refinancing troubles likely to result in a prolongation of difficult wholesale
funding market conditions, we believe funding differences could be a key determinant of
relative growth (and margin) trends within the UAE banking sector. Our analysis suggests
ADCB is less well positioned from a funding perspective; DIB is more so. However, in all
cases, we believe strong institutional support will protect the banks from experiencing
significant liquidity risks.
Wholesale funding requirements appear high

In our view, a key consideration for investors in the UAE banking sector is access to cheap
and stable funding. Although the UAE banking system on average has a loans/deposits ratio
of 105%, a number of the banks in our coverage universe have ratios in excess of 110%.
Consequently, selected entities have significant wholesale financing needs. Compounding
this issue is the possible difficulty the banks may have in raising longer-term funding.
Although bond issuance in the Gulf was picking up in 2009, uncertainty regarding how
Dubai’s debts will be refinanced has likely made international investors more wary towards
the region. Difficulties in issuing new debt, or refinancing maturing obligations, combined
with a more general desire to reduce wholesale financing obligations, could, in our view, lead
certain banks to crimp asset growth over the coming years. In this context, any successful
restructuring of Dubai GRE’s debt would be extremely helpful. We note that markets have
reacted positively to Dubai World’s initial proposals.
In order to determine the relative positioning of the banks from a funding strength
perspective, we review the following metrics:
Loans/deposits ratio
Wholesale funding/assets
Terms loans maturing in 2010-2012 as a percentage of total assets.
According to this metrics ADCB and ENBD appear less well positioned than peers. DIB
appears strong from a funding perspective.
Figure 67: Key funding ratios

Loans/ deposits Wholesale funding* / Term loans and bonds
assets maturing in 2010-12/ total
assets
NBAD 114% 25% 3.4%

ADCB 135% 26% 11.7%
FGB 105% 9% 4.3%
ENBD 125% 20% 5.6%
DIB 78% 5% 2.9%
Median 114% 22% 4.3%
Source: Deutsche Bank, Company data: *Interbank borrowing and term loans (including T2 deposits)

Liquidity – EIBOR remains elevated

Like many of their international peers, UAE banks run a sizeable duration mismatch between
their assets and liabilities -- particularly during times of economic stress, this could result in
liquidity pressure. However, the UAE central bank has been extremely proactive at providing
liquidity support, while the banks appear to have successfully come through a number of
tough tests already. In our view, this suggests that the banking system, and specific entities,
have sufficient support to preclude near-term liquidity risks. Having said that, the upward drift
in EIBOR rates over the past few months is, in our view, indicative of chronic stresses within
the system.
Figure 68: Liquid assets/ total assets and liquid assets/ Figure 69: 3-month EIBOR trending higher
deposits ratio for the UAE banks
5 (%)
35%
30% 4
25%
3
20%
15% 2
10%
1
5%
0% 0
NBAD ADCB FG B E NBD DIB Feb-08 Ma y -08 Aug-08 Nov-08 Feb-09 Ma y -09 Aug-09 Nov-09 Feb-10
Liquid a s s et s /t ot a l a s s et s Liquid a s s et s /t ot a l depos it s Repo rate EIBOR (6 month)
Source: Deutsche Bank; Company data 2009 Note: Liquid assets include cash in hand and cash with CB, Source: Deutsche Bank; Bloomberg data
Interbank borrowings and trading securities.
While the UAE central bank’s efforts to reduce interbank rates in the latter part of 2009 did
have some impact in reducing EIBOR, interbank rates have risen inexorably since the
beginning of this year. Three-month EIBOR now stands at 2.29%, 41bps above its lows in
December 2009. We note that previous big moves in EIBOR have been key drivers of sector
share price performance. While recent moves are not of the same magnitude, they do serve
to illustrate the dependence of most of the UAE banks on the wholesale funding markets
(DIB being the notable exception in our coverage universe).

Figure 70: EIBOR vs. share price performance

(%)
150 1
125
2
100
75 3
50
4
25
0 5
J a n-08 Ma y -08 S ep-08 J a n-09 Ma y -09 S ep-09 J a n-10
NBAD DIB E NBD ADCB FG B E IBO R(RHS )

Source: Deutsche Bank; Bloomberg data
Of the banks that do take part in the Central bank auction, NBAD seems to be well-placed
from a liquidity perspective, while ADCB and ENBD appear less so.
Figure 71: Average EIBOR auction premium/discount

Average EIBOR auction Premium /(Discount) to benchmark rate (%pt) (-0.48) 0.48 0.05 0.46 na
Loans to deposits ratio (%) 114 135 105 125 78
Term loans falling due /bond maturing by 2012 ( as % of total assets) 3.4% 11.7% 4.3% 5.6% 2.9%
Source: Deutsche Bank; Company data; 2009; Note: Deposits are excluding MoF injection
CDS spreads signal positive shift in sentiment

CDS spreads in both Abu Dhabi and Dubai have tightened significantly in recent weeks,
suggesting that credit market investors are reacting positively to recent news flow relating to
Dubai World’s debt restructuring.

Figure 72: CDS spreads have tightened since beginning of the year (change from Q409
peak)
-50
-100
-150
-200
-250
NBAD ADCB E NBD Ma s hr eq Duba i CDS ADX CDS
Source: Deutsche Bank; Bloomberg
While CDS spreads of the Dubai-based banks are significantly higher than those of the Abu
Dhabi-based banks, we believe this may reflect these issues being priced off sovereign
spreads. Stripping out this effect leaves the UAE banks on a more comparable footing.
Figure 73: Selected CDS spreads Figure 74: Corporate CDS spreads (net of sovereign CDS
spreads)
600 210
500 180
150
400
120
300
90
200
60
100
30
0 0
NBAD ADCB E NBD Ma s hr eq Duba i CDS ADX CDS NBAD ADCB E NBD Ma s hr eq
Source: Deutsche Bank, Bloomberg data; as of April 9 2010 Source: Deutsche Bank; Bloomberg data; as of April 9 2010

Divergent growth outlook

We believe the growth prospects of the UAE banks are likely to be much more divergent
than has been the experience over the past few years. We believe there will be two key
drivers of this skew.
Macroeconomic factors – We believe the growth trends of Abu Dhabi and Dubai are
likely to diverge significantly over the coming few years. Abu Dhabi is likely to benefit
from a steady increase in the rate of public sector investment. In Dubai, the opposite is
likely to be true, as the government, and government-related entities seek to deleverage.
This view can be clearly seen in recent and projected construction activity trends for the
two emirates, and is also reflected in our banking system asset growth projections.
Figure 75: UAE new construction orders pa (USDm

50,000
40,000
30,000
20,000
10,000
0
2006 2007 2008 2009E 2010E 2011E 2012E
Dubai UAE (Ex. Dubai)

Source: Deutsche Bank, MEED

Company-specific factors – Those banks with greater capital strength, stronger asset
quality, and a more stable funding structures area will likely pull ahead of banks that are
in a less favourable position along these metrics.
Figure 76: Key company specific factors affecting the growth outlook – 2009
Capital strength Tier 1 ratio 16.0% 12.4% 19.2% 13.2% 12.6%

Score 4 1 5 3 2
Tangible equity/ assets 8.4% 9.4% 14.8% 7.8% 11.3%
Score 2 3 5 1 4
Asset Quality NPLs/ net customer loans 1.3% 5.4% 1.6% 2.8% 4.2%
Score 5 1 4 3 2
Coverage ratio 158% 68% 174% 90% 53%
Score 4 2 5 3 1
Funding Loans/deposits 114% 135% 105% 125% 78%
Score 3 1 4 2 5
Wholesale funding/assets 3.4% 11.7% 4.3% 5.6% 2.9%
Score 4 1 3 2 5
Total Score (high is good) 22 9 26 14 19

On this basis, we see the following balance sheet and revenue growth trends developing
across our coverage universe.
Figure 77: Loan growth – 2010-12E Figure 78: Revenue growth – 2010-12E
15.0%
10%
10.0%
7%
5.0%
4%
0.0%
1%
-5.0%
-2%
N BAD ADCB FG B E NBD DI B Media n
N BAD ADCB FG B E NBD DI B Tot a l
2010E 2011E 2012E 2010E 2011E 2012E
Source: Deutsche Bank; Company data Source: Deutsche Bank; Company data

Sector forecasts
We present a summary of our forecasts for the UAE banks under our coverage in Figure 79.
We see asset growth of 3% in 2010 and 5% in 2011. On average, we forecast revenue
growth of 1% in 2010 and 3% in 2011. We expect banks’ net income to decline sharply in
2010 and remain depressed in 2011 before recovering strongly in 2012. Return on tangible
equity in 2012 should average around 15%.
Figure 79: Asset and revenue growth, and profitability forecasts

Asset growth Revenue growth ROTE
2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

NBAD 8% 9% 10% 8% 8% 10% 17.2% 16.9% 17.4%
ADCB 3% 4% 5% 2% 1% 2% -14.2% -0.4% 12.6%
FGB 10% 11% 11% 5% 8% 8% 9.5% 14.8% 17.9%
ENBD -1% 2% 4% -4% -1% -1% 2.0% 9.9% 14.7%
DIB -3% 1% 2% -4% 0% 1% -5.9% 2.1% 13.9%
Total 3% 5% 7% 1% 3% 4% 3.2% 9.8% 14.9%
Business volumes
As in other regional banking markets, recent UAE banking volume trends have been sluggish.
The latest (Feb-10) central bank data point to 2.5% YoY growth in loans and 3.2% YoY growth
in deposits. In our view, for our coverage universe, loan growth is likely to average 3% in
2010 and 5% in 2011. However, there will be a wide disparity from entity to entity, reflecting
a likely divergence in the growth profiles of the Abu Dhabi and Dubai Emirates, and
differences in funding and capital strength, and risk appetite.
Figure 80: GCC banking system volume YoY growth Figure 81: Loan growth by entity
trends (Dec 2009)
20% 15.0%
10.0%
10%
5.0%
0%
0.0%
-10% -5.0%
Qatar S a udi U AE Oman Kuwa it Ba hr a in G CC N BAD ADCB FG B E NBD DI B Media n
Aver a ge
As s et s Loa ns Depos it s 2010E 2011E 2012E
Source: Deutsche Bank; Central Bank data; Oman and Bahrain data is as of Nov 2009, Source: Deutsche Bank; Company data
Revenues
Net interest income
Net interest income accounts for 69% of the UAE banks’ revenues, on average. In our view,
net interest margins are likely to decline in 2010, reflecting a drag from higher non-
performing/ restructured loans and, in select cases, continued pressure on funding costs.

Allied to the aforementioned business volume forecasts, our margin outlook generates
average net interest income growth of 1% in 2010E, 4% in 2011E and 4% in 2012E. We
expect NBAD and FGB to clearly have the best growth prospects; ENBD and DIB should be
the most subdued.
Figure 82: NIM outlook: column charts 2009-12E Figure 83: NII outlook: column charts 2010-12E
3.50% 15%
3.00% 10%
2.50% 5%
2.00% 0%
1.50% -5%
N BAD ADCB FG B E NBD DI B Media n NBAD ADCB FG B E NBD DI B Media n
2009A 2010E 2011E 2012E 2010E 2011E 2012E
Fee income
Fee income typically generates 19% of UAE banks’ revenues. We believe the growth outlook
for fees will be relatively muted; banking fees are linked to volume growth trends although
capital-markets-related fees are likely to experience a more positive trend, albeit from a low
base.
Figure 84: Fees/revenues and fees/assets ratios – 2010E Figure 85: Fee income growth 2010-12E
25% 1.5% 13%
20% 1.3% 8%
15% 1.0% 3%
10% 0.8% -2%
5% 0.5%
-7%
Fees /r evenues (lhs ) Fees / a s s et s (r hs ) 2010E 2011E 2012E
Source: Deutsche Bank Company data Source: Deutsche Bank Company data
Other income
Other operating income (on average, 7% of total revenues) consists of a variety of items. A
key driver is the banks’ investment portfolios, which generate revenue via interest income
(included within net interest income above), dividends, mark-to-market effects and
gains/losses on sale. Our forecasts are based on a normalization of investment returns to
historical norms.
Total revenues
Across our coverage universe, we forecast total revenues to rise by 1% in 2010, 3% in 2011
and 4% in 2012, significantly lower than the 24% growth achieved in 2009. NBAD and FGB
are likely to experience the most favourable growth profile, in our view, reflecting their
superior volume growth.

Figure 86: Other income as % of revenue, assets (2010E) Figure 87: Total revenue growth outlook
16% 0.80%
10%
12% 0.60%
7%
8% 0.40%
4%
4% 0.20%
1%
0% 0.00%
-2%
NBAD ADCB FG B E NBD DIB Media n
N BAD ADCB FG B E NBD DI B Tot a l
O t her inc om e/ t ot a l r evenues (lhs ) O t her inc om e/ a s s et s (r hs ) 2010E 2011E 2012E
Operating costs
The typical cost/income ratio in the sector is 31%. Although cost inflation was high in
previous years (30% in 2008), the banks have adapted to the slow growth environment by
adopting a more cost-conscious approach (6% in 2009). Consequently, we see cost inflation
averaging just 4-5% over the next few years. Nevertheless, given our relatively cautious
revenue growth outlook, we see cost-income ratios drifting higher in the coming years.
Figure 88: Cost/income ratios 2009-12E Figure 89: Cost growth trends 2010-12E
45% 14%
12%
35%
10%
8%
25%
6%
4%
15%
2%
5% 0%
NBAD ADCB FG B E NBD DI B Media n NBAD ADCB FG B E NBD DI B Media n

2009A 2010E 2011E 2012E 2010E 2011E 2012E
Risk costs
Loans
A key area of uncertainty for the sector relates to the outlook for asset impairments. As our
analysis elsewhere highlights, a number of the banks could conceivably experience
significant downward revisions to asset-carrying values. These writedowns could have a
significant impact on profitability.

Figure 90: Loan impairment charge (as a percentage of loans, actual and forecast)
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
NBAD ADCB FG B E NBD DIB Media n
2007A 2008A 2009A 2010E 2011E 2012E

Source: Deutsche Bank Company data
We believe NPLs/ loans ratios are likely to rise from current levels. For our coverage universe,
we see this ratio peaking at 8.0% in 2011. Our forecasts are consistent with coverage ratios
remaining broadly stable, with a median of 90% in 2010 and 2011 before improving to
around 120% in 2012.
Figure 91: NPLs/ loans ratios 2009-12E Figure 92: Provision coverage ratios 2009-12E
14% 200%
12%
160%
10%
8% 120%
6% 80%
4%
40%
2%
0% 0%
NBAD ADCB FG B E NBD DIB Media n NBAD ADCB FG B E NBD DI B Media n
2009A 2010E 2011E 2012E 2009A 2010E 2011E 2012E
Financial investments
In relation to the banks’ financial investments, we see limited impairment risks, reflecting
heavy provisioning already taken against risky asset classes such as structured credits, and
the recovery in regional and international equity and bond markets since the depth of the
credit crunch. NBAD and DIB have the largest investment portfolios relative to shareholders’
equity, ADCB the smallest.

Figure 93: Investment portfolio mix and impacts (end-09, AEDm)

Accounting treatment
Trading 1,094 87 418 2,040 129
AFS 17,118 4,373 1,921 14,148 1,829
HTM 1,837 0 11,143 576 9,291
Total 20,049 4,459 13,482 16,764 11,248
Asset class
Fixed income 18,188 2,579 11,915 7,864 9,291
Equity 24 329 341 2,943 1,407
Sovereign bonds 1,837 1,095 - 2,725 -
Mutual funds - 41 1,226 - 550
CDO 0 211 0 0 0
Others 0 204 0 2,620 0
Total 20,049 4,459 13,482 16,153 11,248
%asset class
Fixed income 91% 58% 88% 49% 83%
Equity 0% 7% 3% 18% 13%
Sovereign bonds - 25% - 17% -
Mutual funds - 1% 9% - 5%
CDO - 5% 0% 0% 0%
Others 0% 5% 0% 16% 0%
AFS and trading/shareholders 89% 23% 10% 51% 22%

equity
Investment/shareholders equity 98% 23% 59% 52% 125%
Investment/assets 10% 3% 11% 6% 13%
Profitability and capital strength

We see sector profits declining by around 70% in 2010 before recovering strongly in 2011
and 2012. Sector ROA should recover to 1.5% in 2012, ROE to 14.9%
Figure 94: ROA trends – 2009-12E Figure 95: ROE trends – 2009-12E
3.0% 25%
2.5% 20%
2.0%
15%
1.5%
10%
1.0%
5%
0.5%
0%
0.0%
-0.5% -5%
-1.0% -10%
-1.5% -15%
N BAD ADCB FG B E NBD DI B Media n N BAD ADCB FG B E NBD DIB Media n
2009A 2010E 2011E 2012E 2009A 2010E 2011E 2012E

Figure 96: Tier 1 ratio 2009-12E Figure 97: Capital adequacy ratios 2009-12E
20% 30%
25%
16%
20%
12%
15%
8%
10%
4%
5%
0% 0%
NBAD ADCB FG B E NBD DI B N BAD ADCB FG B E NBD DI B
2009A 2010E 2011E 2012E 2009A 2010E 2011E 2012E
In our base case scenario, sluggish balance sheet growth and low dividend distributions from
those banks most exposed to the risk of additional writedowns should result in fairly stable
capital ratios over the next few years. However, under our stress test conditions, we believe
ADCB,ENBD and DIB could require injections of additional capital.

The UAE banking sector

Industry structure
The UAE banking system is the largest in the GCC, reflecting high levels of participation by
foreign banks, and the rapid development of the industry over the past decade, which has led
to a high level of credit penetration (122% loans/GDP ratio).
Figure 98: GCC banking system comparison (total Figure 99: Loans to GDP ratio
assets)
U S Dbn
500 140%
120%
400
100%
300
80%
200 60%
40%
100
20%
-
0%
U AE KS A Kuwa it Qatar Ba hr a in Oman
U AE Ba hr a in Kuwa it Qatar S a udi Oman
Source: Deutsche Bank; Central Bank ;Dec 2009 Source: Deutsche Bank; Central Bank
The UAE banking system is also more fragmented than neighbouring markets. The market
share of the top five banks (by assets) stands at 55%, versus 68% in Saudi Arabia, 79% in
Qatar, and 91% in Kuwait. The market shares of the key participants in the sector are
presented in Figure 100.
Figure 100: Market share of the top 10 UAE banks

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
E m ir a t es NBAD ADCB FG B Ma s hr eq Duba i UNB ADIB CBD NBAQ
NBD Ba nk Is la m ic
ba nk
Tot a l a s s et s E quit y Br a nc hes
Source: Deutsche Bank; UAE Central bank; Company data; December 2009

Balance sheet structure

The asset mix of the banking sector is presented in Figure 101. Loans and advances
comprise around two-thirds of total assets, primarily consisting of loans to the corporate
sector. Around 77% of bank assets are located domestically.
Figure 101: Banking system – asset mix Figure 102: Banking system – loan mix
Cash
9%
Retail
Others
25%
6%
Investment
8%
Government
9%
Loans and Corporate

Advances 66%
Due from Banks
66%
11%
Source: Deutsche Bank; UAE Central bank November 2009 Source: Deutsche Bank; UAE Central Bank November 2009
Almost two-thirds of the banks’ liabilities are customer deposits. Around half of these are
corporate deposits. Time deposits account for 63% of system deposits, and typically have a
maturity of 3-12 months. The government is also a key source of deposits (30% of the total).
The banks are also appear well-capitalised (capital adequacy at 19.2%) as of December 2009,
although equity/assets is lower than some of the other GCC markets and could fall further if
significant asset writedowns were required in the future.
Figure 103: Banking system – liability mix Figure 104: Banking system – deposit mix
Others
Hybrid equity 5% Saving deposits
5% 6%
Equity
10%
Demand deposits
31%
Due to banks
15%
Customer Time deposits
Deposits 63%
65%
Source: Deutsche Bank UAE Central Bank November 2009 Source: Deutsche Bank UAE Central Bank November 2009
Financial performance
The bulk of the bank’s revenues (69%) are generated by net interest income. Net interest
margins currently average 2.6%, broadly in line with the regional average. FGB has the
highest margin in the sector, reflecting a loan book skewed towards retail loans. ADCB has
the lowest margin, reflecting above average funding costs.

Figure 105: Revenue mix (2009) Figure 106: Regional net interest margin
100% 4.0%
80%
3.0%
60%
2.0%
40%
20%
1.0%
0%
NBAD ADCB FG B E NBD DI B 0.0%
SAMBA FGB NBK Bank DIB ENBD NBAD QNB ADCB
NII Fee a nd exc ha nge inc om e O t her inc om e Muscat
Source: Deutsche Bank; Company data Source: Deutsche Bank; Company data as of 2009, DIB-9M09.
Fee income generates 19% of the banks’ revenues, and is predominantly (78%) banking-
related. Other income is generated from the bank’s other assets, such as their real estate and
investment portfolios.
Cost/income ratios tend to be in the 31% area. For the banks under our coverage, FGB has
the lowest cost/income ratio (18% in FY09) and DIB the highest (41% in 2009).
Figure 107: Fee income split (2009) Figure 108: Cost/income ratios
100% 50%
80% 40%
60% 30%
40% 20%
20% 10%
0% 0%
NBAD ADCB FG B DI B NBAD ADCB FG B E NBD DIB
Ba nking inc om e Br oker a ge inc om e O t her inc om e 2007 2008 2009
Source: Deutsche Bank; Company data Note: no split disclosed for ENBD. Source: Deutsche Bank; Company data
Historically, low credit costs (allied with low cost/income ratios and negligible taxation) have
helped the banks generate high levels of profitability. For example, return on assets averaged
1.8% in 2008, and return on equity was 17.6%, figures that compare favourably with global
peers. However, our view is that profitability over the next few years will be much lower than
the global average, reflecting a sharp increase in risk costs and lower volume growth.

Figure 109: ROTE – Global comparison Figure 110: ROA – Global comparison
25 (%) (%)
2.5
20 2.0
15 1.5
10 1.0
5 0.5
0 0.0
LAT AM
LAT AM
CE E ME A
CE E ME A
Br a z il
Is r a el
Br a z il
Is r a el
CE 3
CE 3
Chile
S out h
E ur ope
Chile
S out h
Ka z a khs t a n
Ka z a khs t a n
E ur ope
Qatar
Qatar
UAE
UAE
Ar gent ina
Af r ic a
As ia
Tur key
Ar a bia
Rus s ia
Tur key
Ar gent ina
Ar a bia
Af r ic a
As ia
Rus s ia
S a udi
S a udi
Source: Deutsche Bank, Data as of 2010E Source: Deutsche Bank, Data as of 2010E
Current trends
After experiencing strong growth in the latter part of the previous decade, UAE banking
sector growth has slowed considerably. However, activity has not completely collapsed; total
asset growth is running at 4% YoY, lending at 2% and deposit growth at 7%.
Figure 111: Banking system growth rates Figure 112: Banking system growth rates (YoY)
50% 40% 40%
40%
20% 30%
30%
0% 20%
20%
-20% 10%
10%
0% -40% 0%
2002 2003 2004 2005 2006 2007 2008 2009 J a n-09 Ma r -09 Ma y -09 J ul-09 S ep-09 Nov-09 J a n-10
Loa n Depos it As s et s a ver a ge oil pr ic e (RHS )

As s et s Loa ns Depos it s
Source: Deutsche Bank; UAE central bank ; Bloomberg Source: Deutsche Bank; UAE Central Bank
Not surprisingly, perhaps, the Dubai-based banks have experienced a more significant
slowdown than their Abu Dhabi-based neighbours. At the entity level, FGB has been a clear
market share winner, while DIB has ceded most ground.

Figure 113: UAE bank loans market share trends – Abu Figure 114: Market share gained and lost by banks in
Dhabi top four versus Dubai top four UAE (between 2007 and 2009)
3.0%
40%
2.0%
35% 1.0%
0.0%
30%
-1.0%
-2.0%
25%
2004 2005 2006 2007 2008 2009 -3.0%
NBAD ADCB FG B E NBD DI B
Loa ns Depos it s
Abu Dha bi (Tot a l) Duba i (Tot a l)
Source: Deutsche Bank; Company data; UAE central Bank Note – Abu Dhabi:NBAD, ADCB, FGB, UNB; Dubai: Source: Deutsche Bank; Company data; Deposits excluding MoF injection
ENBD, DIB, Mashreq, and CBD.
As well as slowing volume growth, another key recent trend has been deteriorating loan
quality. As we highlight elsewhere in this report, we believe we are at an early stage in this
process.
Figure 115: Loan quality metrics

2004 2005 2006 2007 2008 2009 2010E 2011E 2012E
NBAD
NPL (% net loans) 2.1% 1.5% 1.6% 1.0% 0.9% 1.3% 2.5% 3.7% 3.1%
NPL coverage 92% 105% 97% 106% 145% 158% 119% 98% 131%
Provision charge(% net loans) 0.2% 0.3% 0.2% 0.1% 0.7% 1.0% 1.2% 1.0% 0.8%
ADCB
NPL (% net loans) 5.2% 2.2% 1.9% 1.4% 1.1% 5.4% 8.3% 10.0% 8.8%
NPL coverage 57% 76% 83% 109% 179% 68% 90% 95% 117%
FGB
NPL (% net loans) 4.3% 2.4% 1.4% 1.0% 0.6% 1.6% 4.0% 6.6% 4.9%
NPL coverage 109% 121% 130% 144% 233% 174% 119% 88% 126%
ENBD
NPL (% net loans) 1.0% 1.5% 2.4% 6.0% 8.5% 6.8%
NPL coverage 205% 65% 105% 88% 84% 117%
Provision charge(% net loans) 0.5% 0.7% 1.4% 2.8% 1.9% 1.2%
DIB
NPL (% net loans) 3.9% 4.0% 4.1% 6.2% 9.4% 12.0% 10.2%
NPL coverage 64% 67% 56% 63% 81% 84% 105%

Sector and Stock Summaries

Reinstating FGB, NBAD (Buy), ADCB (Sell); Initiating DIB (Sell), ENBD (Hold)
UAE banks are trading at a large discount to peers, on consensus multiples, which we
believe reflects a credibility gap between reported asset quality and investor expectations.
We believe gross writedowns equivalent to 4.6% of assets can be expected, which would
erode current tangible common equity by an average of 27%. Nevertheless, high structural
profitability and strong institutional support lead us to recommend FGB and NBAD. We see
both banks winning market share at the expense of their rivals in the coming years.
Low headline consensus multiples reflect the threat of additional impairments

UAE banks are trading at a significant discount to regional and EMEA peers, reflecting
investor expectations of additional writedowns. We expect these writedowns to arise
primarily from the banks' real estate related assets and unsecured retail loans, although
associate investments also present risks. Exposure to Dubai government-related entities
could also result in writedowns, although recent announcements from Dubai World are a
welcome step forward. We believe NBAD is the least exposed to the risk of additional
writedowns, ADCB the most. FGB is broadly in line with the average, but benefits from a
much stronger capital base vs. peers. ENBD's valuation is the most sensitive to future
writedown assumptions.
Funding issues need to be addressed

Despite a significant slowdown in credit growth over the past 18 months, the UAE banking
system is heavily dependent on wholesale funding markets; interbank rates have been
trending higher in recent months. A number of banks have long-term loans due in 2010;
potential refinancing difficulties could put a cap on credit growth. We believe ADCB and
ENBD are the most likely to be affected by these issues, although NBAD’s recent USD750m
bond issue is a positive signal.
Sharp bifurcation in growth prospects is likely

We view continued fiscal stimulus as a likely positive driver for the Abu Dhabi economy. In
contrast, a general process of de-leveraging could constrain Dubai’s prospects. We believe
these trends will be reflected in the volume growth outlook for the UAE banks, with both
ENBD and DIB likely to lose market share. NBAD and FGB are likely relative winners, in our
view.
Top picks FGB (capital strength); NBAD (superior asset quality)

Even under a stress-test scenario (assuming a further 25% decline in real estate values and
more pronounced broader macroeconomic weakness), we see upside potential to both
bank’s shares from current levels. We expect both banks to seize opportunities arising from
any retrenchment by weaker players.
Valuation adjusted for gross potential writedowns averaging 4.6% of assets

We value the shares on a target book multiple approach, using 2012 as our benchmark year,
and discounting at the COE, which is based on a 5.0% RFR (7.0% for ENBD and DIB), 7.0%
ERP and beta of 1, and also factor in the effect of additional writedowns. Based on our
target prices, the UAE banks trade at a median 1.0x 2010E book value, compared with the
global emerging market banks’ median of 1.7x, and the MENA median of 1.6x, respectively.
Upside risks are a swifter-than-expected global economic recovery, which could boost
volume growth and asset values, and lower funding costs. Downside risks are writedowns in
excess of those factored into our valuations.

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Banking
11 April 2010
Nat Bank of Abu Dhabi Buy

Price at 9 Apr 2010 (AED) 11.90
Reuters: NBAD.AD Bloomberg: NBAD UH Price Target (AED) 14.50
52-week range (AED) 14.25 - 8.52
High quality but fully priced Price/price relative
100
80
60
Highest asset quality in the sector 40

A high proportion of government lending (15% of loan book) and a cautious risk 20
culture have enabled NBAD to experience lower asset impairments and superior 0
profitability to many of its peers in recent quarters. We note that the bank’s 4/07 10/07 4/08 10/08 4/09 10/09
government links bring funding cost advantages, which allow the bank to Nat Bank of Abu Dhab
generate profits without moving too far along the credit risk curve. MSCI Arab (Rebased)
Strong government link is a positive driver Performance (%) 1m 3m 12m

We believe the Abu Dhabi government is likely to provide sustained fiscal Absolute 0.8 -2.8 20.2
MSCI Arab 4.2 9.1 38.5
stimulus to the local economy over the coming years, which is likely to keep loan
demand ticking over. In addition, we believe NBAD could be well-placed to Stock data
benefit from the infrastructure financing needs of the Emirate. While the loans-to- Price Target (AED) 14.50
deposit ratio (excluding tier 2 deposits) at 114% is quite high, we regard the bank Market cap (AED) 28,461
as one of the better positioned from liquidity/funding risk perspective, as reflected Shares outstanding (m) 2,551
in NBAD's below-average funding costs. We believe additional public sector Free float (%) 0.0
MSCI Arab 527.9
funds would be forthcoming if needed.
Scope to boost margins and market share Key indicators (FY1)
Given difficulties at other banks, NBAD could find itself in a strong position to ROE Stated (AED) 17.2
Total Loans/Total Deposits (x) 114.0
boost market share in the private sector at a favourable (and less risky) point in Net Interest Margin (%) 2.8
the economic cycle. We note that the bank has invested heavily in its network Book value/share (AED) 8.1
(with the cost/income ratio rising from 24% to 30% over the past four years). Cost-Income Ratio (x) 30.8
International expansion could also have a beneficial impact on margins (the bank Net interest cover (x) 2.5
Tier 1 Ratio (%) 16.8
currently has 27 branches in Egypt).
Our valuation incorporates potential additional writedowns of AED1.7bn
We value the shares on a target price/book multiple basis, using 2012E as our
benchmark year and discounting back by the cost of equity, which is based on a
risk-free rate of 5.0%, equity risk premium of 7.0% and beta of 1.0. We assume
long-term growth of 3.5%. Our target price of AED14.50 is equivalent to 1.8x
2010E tangible common book value. Downside risks include the scope for
political interference; the capital base not as strong as some peers, in our view.
Forecasts and ratios

Year End Dec 31 2008A 2009A 2010E 2011E 2012E
EPS Stated (AED) 1.27 1.26 1.29 1.48 1.79
EPS Adjusted (AED) 1.17 1.23 1.24 1.42 1.71
P/E Adjusted (x) 7.2 10.5 9.9 8.6 7.1
DPS(AED) 0.25 0.10 0.10 0.15 0.25
Dividend Yield (%) 0.7 0.9 0.8 1.3 2.1
PBT (AEDm) 2,914 3,093 3,150 3,622 4,377
ROE Stated (%) 23.6 19.6 17.2 16.9 17.4
ROE Adjusted (%) 22.2 19.6 17.2 16.9 17.4
BVPS Stated (AED) 6.0 6.9 8.1 9.4 11.1
BVPS Tangible (AED) 6.0 6.9 8.1 9.4 11.1
P/B Stated (x) 1.3 1.8 1.5 1.3 1.1
P/B Tangible (x) 1.3 1.8 1.5 1.3 1.1
Source: Deutsche Bank estimates, company data

Model updated:10 April 2010 Fiscal year end 31-Dec 2008 2009 2010E 2011E 2012E
Running the numbers Data Per Share
EPS (stated)(AED) 1.27 1.26 1.29 1.48 1.79
Middle East
EPS (DB) (AED) 1.17 1.23 1.24 1.42 1.71
United Arab Emirates Growth Rate - EPS (DB) (%) 14.3 4.8 0.8 14.5 20.5
DPS (AED) 0.25 0.10 0.10 0.15 0.25
Banking BVPS (stated) (AED) 6.00 6.87 8.06 9.44 11.07
Tang. NAV p. sh. (AED) 6.00 6.87 8.06 9.44 11.07
Market Capitalisation 19,264 29,657 28,461 28,461 28,461
Nat Bank of Abu Dhabi Shares in issue 2,526 2,551 2,551 2,551 2,551
Reuters: NBAD.AD Bloomberg: NBAD UH

Valuation Ratios & Profitability Measures
Buy P/E (stated) 6.3 9.8 9.3 8.1 6.7
P/E (DB) 7.2 10.5 9.9 8.6 7.1
Price (9 Apr 10) AED 11.90 P/B (stated) 1.3 1.8 1.5 1.3 1.1
P/Tangible equity (DB) 1.3 1.8 1.5 1.3 1.1
Target price AED 14.50 ROE(stated)(%) 23.6 19.6 17.2 16.9 17.4
52-week Range AED 8.52 - 14.25 ROTE (tangible equity) (%) 22.2 19.6 17.2 16.9 17.4
ROIC (invested capital) (%) 22.2 19.6 17.2 16.9 17.4
Market Cap (m) AEDm 28,461
Dividend yield(%) 0.7 0.9 0.8 1.3 2.1
USDm 7,749
Dividend cover(x) 5.1 12.6 12.9 9.8 7.1
Company Profile
The second largest bank in UAE by assets, National Bank of Profit & Loss (AEDm)
Abu Dhabi (NBAD) had total assets of AED196bn as at end- Net interest revenue 3,608 4,571 5,100 5,575 6,150
2009 and a 12% market share in loans and advances. NBAD Non interest income 1,517 1,828 1,835 1,945 2,085
operates one of the largest branch networks in the country Commissions 1,555 1,562 1,615 1,710 1,835
(89 outlets), offering a broad range of commercial, investment Trading Revenue -193 161 175 195 215
banking, treasury, wealth management and Islamic banking Other revenue 155 105 45 40 35
products to its corporate and retail customers. The bank is
Total revenue 5,124 6,399 6,935 7,520 8,235
majority owned by Abu Dhabi Investment Council, with 70%
stake. The stock has a foreign ownership limit of 25%. Total Operating Costs 1,493 1,970 2,137 2,300 2,433
Employee Costs 901 1,237 1,400 1,500 1,585
Other costs 593 733 737 800 848
Pre-Provision profit/(loss) 3,631 4,501 4,798 5,220 5,802
Bad debt expense 717 1,336 1,648 1,598 1,425
Operating Profit 2,914 3,093 3,150 3,622 4,377
Pre-tax associates 0 0 0 0 0
Pre-tax profit 2,914 3,093 3,150 3,622 4,377
Tax 72 73 75 90 105
Other post tax items 177 0 0 0 0
Stated net profit 3,019 3,020 3,075 3,532 4,272
Goodwill 0 0 0 0 0
Extraordinary & Other items -177 0 0 0 0
Bad Debt Provisioning 0 0 0 0 0
Investment reval, cap gains / losses 0 0 0 0 0
DB adj. core earnings 2,842 3,020 3,075 3,532 4,272
Key Balance Sheet Items (AEDm) & Capital Ratios

Risk-weighted assets 118,595 132,668 143,219 156,699 171,863
Interest-earning assets 134,831 171,828 189,000 207,000 227,000
Customer Loans 111,764 132,258 142,500 155,000 170,000
Total Deposits 97,875 115,599 125,000 137,500 152,500
Stated Shareholder Equity 14,357 16,441 19,276 22,568 26,482
Equals: Tangible Equity 14,357 16,441 19,276 22,568 26,482
Tier 1 capital 14,989 21,286 24,121 27,414 31,327
Tier 1 ratio (%) 13 16 17 17 18
o/w core tier 1 capital ratio (%) 12.6 16.0 16.8 17.5 18.2
Credit Quality
Gross NPLs/Total Loans(%) 0.96 1.28 2.46 3.71 3.09
Risk Provisions/NPLs(%) 145 158 119 97 131
Bad debt / Avg loans (%) 0.64 1.01 1.16 1.03 0.84
Bad debt/Pre-Provision Profit(%) 19.7 29.7 34.4 30.6 24.6
Growth Rates & Key Ratios

Growth in revenues (%) 40 25 8 8 10
Growth in costs (%) 42 32 8 8 6
Growth in bad debts (%) 1,620 86 23 -3 -11
Growth in RWA (%) 40 12 8 9 10
Net int. margin (%) 3.08 2.98 2.83 2.82 2.83
Cap.-market rev. / Total revs (%) nm nm nm nm nm
Total loans / Total deposits (%) 114 114 114 113 111
ROTE Decomposition
Revenue % ARWAs 5.05 5.09 5.03 5.01 5.01
Net interest revenue % ARWA 3.55 3.64 3.70 3.72 3.74
Non interest revenue % ARWA 1.49 1.45 1.33 1.30 1.27
Costs/income ratio (%) 29.1 29.7 30.8 30.6 29.5
Bad debts % ARWAs 0.71 1.06 1.20 1.07 0.87
Tax rate (%) 2.5 2.4 2.4 2.5 2.4
Adj. Attr. earnings % ARWA 2.91 2.49 2.29 2.41 2.65
Rahul Shah Capital leverage (ARWA/Equity) 7.9 8.2 7.7 7.2 6.7
+971 4 4283-261 rahul.shah@db.com ROTE (Adj. earnings/Ave. equity) 23.1 20.3 17.7 17.3 17.7
Source: Company data, Deutsche Bank estimates

National Bank of Abu Dhabi

Company profile
The second-largest bank in the UAE by assets, National Bank of Abu Dhabi (NBAD) had total
assets of AED197bn as of FY09, and a 13% market share of loans and advances. NBAD
operates one of the largest branch networks in the country (100 outlets), offering a broad
range of commercial, investment banking, treasury, wealth management and Islamic banking
products to its corporate and retail customers. Depositors include the government and
government-related entities (53%), corporate (27%), and individuals (20%). The bank is rated
‘Aa3’ by Moody’s, ‘AA-‘by Fitch and ‘A+’ by S&P.
Figure 116: Loan mix Figure 117: Deposit mix
Retail Retail
18% 20%
Government
40%
Government
54%
Corporate
26%
Corporate
42%
Source: Deutsche Bank, Company data 2009 Source: Deutsche Bank, Company data 2009
Shareholding structure
NBAD is listed on the Abu Dhabi Securities Exchange. The largest shareholder is the Abu
Dhabi Investment Council (70% holding). Foreign ownership (ex GCC, ex Arabs) currently
stands at 1.6% versus foreign ownership limit of 25%. The market capitalization of the stock
is USD7.3bn; average daily trading value is around USD1.1m.
SWOT analysis
Strengths
Close links with public sector. As the largest Abu Dhabi-headquartered bank NBAD
enjoys preferential access to public sector deposits and scope to provide financing and
advising services related to big-ticket government infrastructure projects.
Cheap funding costs. An extensive distribution network (100 domestic and 47
international branches), and its close links to the Abu Dhabi government, help NBAD
enjoy the lowest funding costs in the sector.
Superior asset quality. NBAD lent more selectively during the boom years than many of
its peers. Its loan mix is also more conservative (more to public sector lending).
Consequently, NPL volume growth has been limited relative to peers.
Weakness
During 2006-09, NBAD’s deposit base increased at a CAGR of 20% versus loan growth
of 32%, resulting in the loans/deposit ratio rising from 81% to 114%. Consequently, the
bank is partially reliant on wholesale funding markets to meets it’s funding needs.

Limited capital strength. Although the bank’s regulatory capital ratios are high, NBAD’s
tangible common equity/assets ratio (8%) is lower than some of its peers.
Opportunities
Scope to shift into higher-margin businesses. While NBAD has traditionally behaved as a
relatively conservative operator, it could move into areas such as real estate, capital
markets, and corporate finance on a selective basis as the economy improves.
International expansion. Continual investments in Egypt give NBAD access to a large
MENA market with good structural growth potential. The financial performance of these
operations will likely improve as the business grows, in our view.
Threats
Large investment portfolio: NBAD has AED20bn in financial investments, largely
consisting of debt securities, and equivalent to 10% of total assets and 122% of equity.
Any required writedowns could impact earnings and shareholder equity.
Downside risks include the risk of political interference in the business; for example, the
bank’s extensive branch network may be used to pursue social objectives (bringing the
rural population into the banking system), while there is a risk that the bank may be
asked to support weaker parts of the banking system, or at least to avoid aggressive
competition in selected areas (e.g., deposit gathering).
Figure 118: YoY growth in loans and oil prices Figure 119: Net new loans added in 9M09 (AED bn)
60% 20% 20
15% 15
40%
10% 10
20%
5%
5
0% 0%
-
-5%
-20% (5)
-10%
-40% (10)
-15%
ADCB
Rak Bank
Mashreq Bank
Emirates NBD
CBD
FGB
ADIB
BOS
DIB
NBF
NBAD
Ajman
-60% -20%
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Average oil price (LHS) Gross loans (RHS)
Source: Deutsche Bank; Company data, Note: Oil price is one quarter lag Source: Deutsche Bank; Company data
Figure 120: Fee income mix has improved over the years Figure 121: Specific impairments on the rise over the
year (as % of net profit)
100% 50%
80% 40%
60% 30%
40% 20%
20% 10%
0% 0%
2005 2006 2007 2008 2009 2008 1Q09 H109 3Q09 2009
Banking fee Brokerage income IPO Asset management others Collective impairments Specific impairments
Source: Deutsche Bank; Company data Source: Deutsche Bank


Banking
11 April 2010
Abu Dhabi Commercial Bank Sell

Price at 9 Apr 2010 (AED 1.94
Reuters: ADCB.AD Bloomberg: ADCB UH Price Target (AED) 1.75
52-week range (AED) 2.66 - 1.33
Risk/reward still unfavourable Price/price relative
10
8
6
Recent asset quality track record has been poor 4
ADCB’s NPLs/loans ratio deteriorated from 1.1% to 5.4% in 2009 while the 2
bank’s coverage ratio fell from 179% to 68%. We note that the bank was one of 0
the most exposed to the Saad and Algosaibi groups, and has also disclosed 4/07 10/07 4/08 10/08 4/09 10/09
AED9bn exposure to Dubai World, against which no provisions have yet been Abu Dhabi Comm Bank
taken. Despite recording a loss in FY09 on higher loans impairment charges, our MSCI Arab (Rebased)
calculations suggest that the bank remains at risk from additional writedowns.
Performance (%) 1m 3m 12m
Funding outlook appears to be weak Absolute 22.3 26.1 18.7
ADCB has AED8.8bn bonds falling due in 2010, equivalent to 5.5% of total assets. MSCI Arab 5.4 9.7 36.2
In addition, the bank’s loans/deposits ratio, at 135%, is one of the highest in the
Stock data
sector. Although ADCB was able to successfully issue AED3.6bn bonds in
Price Target (AED) 1.50
October 2009, we believe funding issues are a potential risk to loan growth, and Market cap (AED) 9,764
could impact sentiment towards the shares if additional issuance proves difficult. Shares outstanding (m) 5,582
Free float (%) 0.0
New management team is making positive progress MSCI Arab 526.1
With both the CEO (appointed in 2008) and vice chairman (in 2008) and many
other senior management positions being filled in the last few years, we believe Key indicators (FY1)
ADCB’s financial performance is likely to improve. Operating costs have been well ROE Stated (AED) -14.2
controlled and reporting transparency has been enhanced. However, it will take Total Loans/Total Deposits (x) 135.6
Net Interest Margin (%) 2.3
time to exit certain legacy positions, which could in the meantime require Book value/share (AED) 2.7
additional valuation adjustments to be taken. Cost-Income Ratio (x) 34.3
Net interest cover (x) 8.2
Discount to MENA peers warranted; further AED5.7bn writedowns seen Tier 1 Ratio (%) 10.0
We value the shares on a target price/book multiple approach, using 2012E as our
benchmark year and discounting by the cost of equity, which is based on a risk-
free ratio of 5.0%, equity risk premium of 7.0% and a beta of 1.0. We assume
long-term growth of 3.5%. Our target price of AED1.75 is equivalent to 0.7x
2010E tangible book value. Key upside risks include the potential for the bank to
achieve strong growth in its investment banking and Islamic financing businesses,
and the potential for the bank to participate in sector consolidation. The bank is
also likely to benefit from having a strong core shareholder.

EPS Stated (AED) 0.26 -0.12 -0.41 -0.01 0.34
EPS Adjusted (AED) 0.25 -0.10 -0.37 -0.02 0.26
P/E Adjusted (x) 8.3 -14.3 -5.5 -229.80 6.5
DPS(AED) 0.10 0.00 0.00 0.00 0.15
Dividend Yield (%) 2.0 0.0 0.0 0.0 7.7
PBT (AEDm) 1,278 -574 -1979 -47 1,658
ROE Stated (%) 9.1 -3.6 -14.2 -0.4 12.6
BVPS Stated (AED) 3.3 3.1 2.7 2.6 2.9
P/B Stated (x) 0.5 0.5 0.7 0.7 0.7
P/B Tangible (x) 0.5 0.5 0.7 0.7 0.7

EPS (stated)(AED) 0.26 -0.12 -0.41 -0.01 0.34
Middle East
EPS (DB) (AED) 0.25 -0.10 -0.37 -0.02 0.26
United Arab Emirates Growth Rate - EPS (DB) (%) -38.5 -141.9 -255.0 94.5 1,372.0
DPS (AED) 0.10 0.00 0.00 0.00 0.15
Tang. NAV p. sh. (AED) 3.29 3.12 2.66 2.60 2.87
Abu Dhabi Comm Bank Shares in issue 5,340 5,726 5,582 5,582 5,582
Reuters: ADCB.AD Bloomberg: ADCB UH

Sell P/E (stated) 6.9 -13.4 -4.7 -198.1 5.6
P/E (DB) 8.3 -14.3 -5.5 -229.8 6.5
Target price AED 1.75 ROE(stated)(%) 9.1 -3.6 -14.2 -0.4 12.6
52-week Range AED 1.33 - 2.66 ROTE (tangible equity) (%) 8.5 -4.1 -14.2 -0.4 12.6
ROIC (invested capital) (%) 8.5 -4.1 -14.2 -0.4 12.6
Dividend yield(%) 2.0 0.0 0.0 0.0 7.7
USDm 2,541
Dividend cover(x) 2.6 nm nm nm 2.3
Company Profile
Headquartered in Abu Dhabi, ADCB provides a wide range of Profit & Loss (AEDm)
commercial banking services such as retail banking and Net interest revenue 2,481 3,276 3,275 3,300 3,350
corporate banking as well as private banking, wealth Non interest income 1,649 1,219 1,296 1,292 1,318
management, and treasury.The bank's operation inside the Commissions 982 986 1,040 1,100 1,175
UAE consisted of 98% of operating income in 2009. ADCB Trading Revenue 399 158 135 110 90
has an asset base of 160bn and holds 11.8% of market share Other revenue 268 76 121 82 53
of loans and advances as at end-2009.The stock has a
Total revenue 4,129 4,496 4,571 4,592 4,668
foreign ownership limit at 25%.
Total Operating Costs 1,525 2,324 1,858 1,797 1,655
Employee Costs 848 857 865 875 900
Other costs 677 1,467 993 922 755
Bad debt expense 1,498 2,968 4,942 3,117 1,650
Operating Profit 1,106 -797 -2,229 -322 1,363
Pre-tax profit 1,278 -574 -1,979 -47 1,658
Tax 9 4 0 0 0
Other post tax items -33 17 0 0 0
Stated net profit 1,237 -560 -1,979 -47 1,658
Goodwill 0 0 0 0 0
Extraordinary & Other items -89 -64 0 0 0
DB adj. core earnings 1,147 -624 -1,979 -47 1,658

Customer Loans 108,813 116,611 120,000 125,000 131,000
Total Deposits 84,361 86,300 90,000 94,500 100,000
Tier 1 capital 14,185 17,102 14,883 17,096 18,364
Tier 1 ratio (%) 11 12 10 11 11
Credit Quality

Growth in costs (%) 51 52 -20 -3 -8
Growth in bad debts (%) 113 98 66 -37 -47
Growth in RWA (%) 33 11 6 4 5
Net int. margin (%) 2.31 2.43 2.32 2.26 2.19
ROTE Decomposition
Revenue % ARWAs 3.78 3.42 3.20 3.07 2.98
Bad debts % ARWAs 1.37 2.26 3.46 2.08 1.05
Tax rate (%) 0.8 -0.5 0.0 0.0 0.0
Adj. Attr. earnings % ARWA 1.05 -0.62 -1.61 -0.26 0.73
+971 4 4283-261 rahul.shah@db.com ROTE (Adj. earnings/Ave. equity) 8.4 -5.3 -16.5 -3.1 8.7

Abu Dhabi Commercial Bank

Company profile
ADCB is the second largest Abu Dhabi-headquartered commercial bank (by assets). It
operates a network of 47 branches and 166 ATMs, and offers commercial, retail, treasury and
investment banking products to its largely Abu Dhabi-based customers. As of December
2009, the bank had AED160bn in assets, AED120bn in gross loans (12% market share) and
AED86bn in customer deposits (9% market share).The current loan mix includes corporate
(69%), retail (30%) and government (1%). The bank was assigned an ‘A1’ rating by Moody’s
and an ‘A‘ rating by Standard & Poor’s. As at H109, 60% of the bank’s loans are to Abu Dhabi
borrowers and a majority of the portfolio balance was to Dubai-based entities.
Figure 122: Loan mix Figure 123: Deposit mix
Government
1%
Retail Government
Retail 24% 26%
30%
Corporate
69%
Corporate
50%
The Abu Dhabi government, via the Abu Dhabi Investment Council, owns 64.8% of the
outstanding shares, with a balance of 35.2% available as free float. The stock has a 25%
foreign ownership limit. The current foreign ownership (ex GCC, ex Arabs) stands at 1.8%.
The market capitalization of the stock is USD2.8bn; the average daily trading value is around
USD1.4m.
SWOT analysis
Strengths
Strong and supportive shareholder. The Abu Dhabi government is a key supporter of the
business, which should provide benefits in terms of business flows and financial
support.
Strategic focus on corporate banking: ADCB has one of the largest corporate loan books
in the UAE. Consequently, the bank should be more exposed than its peers to any upturn
in the local economy.
Weakness
Credit quality lags peers: ADCB’s NPLs/loan ratio of 5.2% in 2009 is the highest in our
coverage universe. We see loan impairment charges remaining elevated for some time.
Limited geographic diversification: The bank is predominantly a local bank, with limited
asset diversity outside of UAE (3.3% of total assets). We believe the bank is unlikely to
seek out international growth opportunities in the near term.

Opportunities
Building a local Islamic banking business: ADCB is eager to grow its Islamic banking
operations, and should be able to capitalize on the knowledge and expertise of its
Malaysian associate, RHB Capital. Successful expansion in retail Islamic banking coulsd
also help lower the bank’s cost of funds.
Threats
Liquidity and funding. With a loans/deposits ratio of 135% in 2009, the bank is more
exposed to wholesale funding than its peer group, which may prove to be less stable
and more expensive than deposit funding.
Exposure to troubled borrowers: Above-average exposure to the Saad and Algosaibi
Saudi conglomerates and Dubai World, combined with above-average NPLs/loans and
low provision coverage, suggests that investor sentiment towards the stock will remain
fragile.
Figure 124: NPL/loans vs. peer group Figure 125: Coverage ratio lower than peer group
8%
250%
6% 200%
150%
4%
100%
2%
50%
0% 0%
NBAD ADCB FGB ENBD DIB Median NBAD ADCB FGB ENBD DIB Median
2008 2009
2008 2009
Figure 126: High reliance on market borrowings – AED Figure 127: ROE history – ADCB vs. sector
bn
14.0%
30%
12.0%
25%
10.0%
20%
8.0%
15%
6.0%
10%
4.0%
5%
2.0%
0%
0.0% 2006 2007 2008 2009
NBAD ADCB FGB ENBD DIB -5% ADCB Average , ex ADCB
Source: Deutsche Bank; Company data 2009 Source: Deutsche Bank; Company data, Note Average calculated on Deutsche Bank universe.


Banking
11 April 2010
First Gulf Bank Buy

Reuters: FGB.AD Bloomberg: FGB UH Price Target (AED) 26.00
52-week range (AED) 19.55 - 9.51
Attractive combination of Price/price relative
growth and capital strength

32
28
24
20
16
12
Strong core shareholder, well-connected Board, effective management team 8
FGB is 61%-owned by the Al Nahyan family, Abu Dhabi’s rulers. The Board of 4
Directors is filled with influential corporate and political leaders. FGB’s stable 4/07 10/07 4/08 10/08 4/09 10/09
senior management team (average tenure: 5 years) has effectively harnessed First Gulf Bank
these connections to help generate a consistent trend of rising market share and MSCI Arab (Rebased)
above-average profitability. Performance (%) 1m 3m 12m
Absolute 0.6 6.8 88.0
Flexible cost structure generates benefits on both sides of the cycle MSCI Arab 4.2 9.1 38.5
FGB operates a relatively lean branch network (19 branches), but employs a highly
incentivised agent network to win new business. This business model allowed Stock data
the bank to cut costs during the recent downturn; the cost/income ratio was 19% Price Target (AED) 26.00
in 2009. However, the bank should also be able to ramp up its distribution Market cap (AED) 24,888
Shares outstanding (m) 1,478
capacity more aggressively than peers should business conditions improve.
Free float (%) 0.0
Solid capital base to absorb potential losses; buy-back is supportive MSCI Arab 527.9
A mandatory convertible issue in 2008 and a hybrid tier 1 issuance last year have
Key indicators (FY1)
given FGB one of the strongest capital bases in the GCC, with an equity/assets
ROE Stated (AED) 9.5
ratio of 15% and a tier 1 ratio of 19%. This capital base would allow the bank to Total Loans/Total Deposits (x) 103.1
absorb a significant volume of asset impairments without experiencing capital Net Interest Margin (%) 3.6
stress, but has also allowed the bank to implement a buy-back programme that Book value/share (AED) 14.1
should prove supportive to the share price (28m shares have been repurchased Cost-Income Ratio (x) 19.1
since the programme began in November 2008, with 7m repurchased so far in Tier 1 Ratio (%) 18.2
2010).
Upside seen even after factoring in AED3.7bn additional writedowns
benchmark year and discounting back by cost of equity, which is based on a risk-
free rate of 5.0%, equity risk premium of 7.0% and beta of 1.0. We assume long-
term growth of 3.5% Our AED26.00 target price is equivalent to 1.8x 2010E
tangible book value. Downside risks include the possibility that asset impairments
are higher than expected, possibly reflecting the bank’s above-average historical
growth, its agent distribution model and above-average exposure to the real
estate industry.
EPS Stated (AED) 2.19 2.41 1.31 2.20 3.09
EPS Adjusted (AED) 2.05 2.06 0.98 1.81 2.63
P/E Adjusted (x) 4.4 7.2 14.8 8.8 6.3
DPS(AED) 0.35 0.50 0.40 0.50 0.60
Dividend Yield (%) 1.7 3.8 2.2 2.8 3.3
PBT (AEDm) 2,332 2,737 1,806 3,026 4,248
ROE Stated (%) 22.8 19.0 9.5 14.8 18.4
ROE Adjusted (%) 22.8 19.0 9.5 14.8 18.4
BVPS Stated (AED) 11.8 13.5 14.1 15.7 17.9
P/B Stated (x) 0.8 1.2 1.3 1.2 1.0
P/B Tangible (x) 0.8 1.2 1.3 1.2 1.0

EPS (stated)(AED) 2.19 2.41 1.31 2.20 3.09
Middle East
EPS (DB) (AED) 2.05 2.06 0.98 1.81 2.63
United Arab Emirates Growth Rate - EPS (DB) (%) 40.3 0.5 -52.4 84.2 45.8
DPS (AED) 0.35 0.50 0.40 0.50 0.60
Tang. NAV p. sh. (AED) 11.81 13.47 14.09 15.69 17.94
First Gulf Bank Shares in issue 1,431 1,482 1,478 1,478 1,478
Reuters: FGB.AD Bloomberg: FGB UH

Buy P/E (stated) 4.2 6.7 13.8 8.2 5.9
P/E (DB) 4.4 7.2 14.8 8.8 6.3
Dividend yield(%) 1.7 3.8 2.2 2.8 3.3
USDm 6,776
Dividend cover(x) 6.3 4.8 3.3 4.4 5.1
Company Profile
Based in Abu Dhabi, FGB offers a range of banking services Profit & Loss (AEDm)
including commercial and corporate banking, treasury and Net interest revenue 2,581 3,834 4,125 4,450 4,800
investment activities, brokerage, portfolio management, Non interest income 1,295 1,725 1,721 1,832 1,968
private banking, real estate services and Islamic banking Commissions 1,218 1,330 1,410 1,525 1,665
services. FGB's asset base stands at 124bn, and it has a Trading Revenue -69 218 130 125 120
market share of 9% of loans and advances as of end-2009. Other revenue 147 177 181 182 183
The bank is majority-owned by the ruling (Al Nahyan) family
Total revenue 3,876 5,559 5,846 6,282 6,768
of Abu Dhabi, with a 61% stake. The stock has a foreign
ownership limit of 15%. Total Operating Costs 1,135 1,171 1,745 1,590 1,235
Employee Costs 560 580 600 630 665
Other costs 575 591 1,145 960 570
Bad debt expense 566 1,680 2,329 1,705 1,325
Operating Profit 2,175 2,708 1,771 2,986 4,208
Pre-tax profit 2,332 2,737 1,806 3,026 4,248
Tax 0 0 0 0 0
Stated net profit 3,005 3,310 1,806 3,026 4,248
Goodwill 0 0 0 0 0
Extraordinary & Other items 0 0 0 0 0
DB adj. core earnings 3,005 3,310 1,806 3,026 4,248

Customer Loans 79,363 90,386 99,000 110,000 122,500
Total Deposits 69,453 86,422 96,000 107,500 121,000
Tier 1 capital 16,122 22,268 23,129 25,319 28,422
Tier 1 ratio (%) 15 19 18 18 18
Credit Quality

Growth in costs (%) 86 3 49 -9 -22
Growth in RWA (%) 72 5 10 11 11
Net int. margin (%) 3.42 3.82 3.62 3.52 3.41
ROTE Decomposition
Revenue % ARWAs 4.44 4.92 4.82 4.70 4.55
Bad debts % ARWAs 0.65 1.49 1.92 1.28 0.89
Tax rate (%) 0.0 0.0 0.0 0.0 0.0

First Gulf Bank

Company profile
Established in 1979, First Gulf Bank (FGB) is the fourth largest bank by total assets in UAE at
the end of 2009. FGB offers a broad range of corporate, retail, treasury and investments,
corporate finance and Islamic banking services to its UAE-based large corporate and retail
customers. FGB’s main market is Abu Dhabi with 19 branches and 63 ATMs across UAE; the
bank also has a presence in India, Libya, Qatar, Singapore and the UK. FGB had 9% domestic
market share each of loans and deposits at the end of 2009. FGB is affirmed ‘A+’ by Fitch,
‘A2’ by Moody’s and ’A+’ by Capital Intelligence. At the end of 2009, FGB’s loan-to-deposit
ratio was at 105%; the loans-to-stable resources ratio monitored by the CBUAE was 86%.
Figure 128: Loan mix Figure 129: Asset mix
Government Liquid assets Investment

8% associates
7% Investment
1%
properties
5%
Short term
treasury
investments
Retail
6%
30% Other
investments
5%
Other assets
Corporate
4%
63%
Loans
71%
Source: Company data, 2009 Source: Company data, 2009
The bank is majority-owned by the ruling family of Abu Dhabi, in their private capacity, with a
66% stake. The stock has a foreign ownership limit of 15% (reduced from 30% in Q109) and
foreign ownership (ex GCC, ex Arabs) stands at 9% at the end of 2009. The market
capitalization of the stock is USD6.7bn; the average daily trading value is around USD2.9m.
SWOT analysis
Strengths
Close ties with Abu Dhabi’s ruling family provide preferential access to the public sector
and HNWI business.
High profitability. A disciplined management approach has resulted in FGB enjoying
some of the highest margins and lowest operating costs in the sector (FY09 ROAA of
2.8%, vs. the sector median of 1.3%).
Agent-driven business model. The bank employs an asset-light distribution strategy. This
has provided the bank with adequate flexibility to increase or trim the workforce during
the current downturn, thus helping to keep operating costs in control.
Strong capital base. In addition, the bank has obtained approval to buy back up to 10%
of its shares, which should, in our view, provide support for the shares over the coming
quarters. In FY09, the bank purchased 21m shares, and total treasury shares are now
14% of total outstanding shares.

Weakness
The bank has generated some 25% of earnings from non-banking income streams over
the last three years (largely from property-related businesses). It may be difficult for the
bank to maintain this proportion in the future, given well-documented difficulties in the
real estate market.
Recent rapid loan growth. FGB has consistently won market share over the past years.
While this bears testament to the bank’s commercial approach, in the near term this
expansion could lead to heightened credit risk costs.
Opportunities
Continued market share accretion. A strong capital base, lower operating costs and the
flexibility to expand its agent network should allow FGB to win market share once the
growth environment improves. We believe management could also consider M&A as a
route to growth if an appropriately-priced distressed franchise were to become available.
Strong asset quality should also help lift ROE as excess capital is gradually consumed.
Threats
Property exposure: FGB’s exposure to the housing real estate and construction sectors
(28% of loan book and an additional AED6bn of real estate investments) could prove to
be a drag on earnings and a risk to capital if the real estate market remains weak.
Figure 130: Retail loans (as a % of total loans) Figure 131: Net interest margins above peer group
60% 3.50%
50%
3.00%
40%
30%
2.50%
20%
2.00%
10%
0%
2005 2006 2007 2008 2009 1.50%
2006 2007 2008 2009
NBAD ADCB FGB ENBD DIB FGB Sector, Ex FGB
Source: Deutsche Bank; Company data ADCB, NBAD and FGB as of 2009 , DIB 9M09 Note : For FGB retail Source: Deutsche Bank; Company data
loans include loans given to National housing loan
Figure 132: Lowest cost-to-income ratio in the sector Figure 133: Equity/assets and tier 1 ratio vs. peer group
45% 20%
35%
15%
25%
10%
15%
5%
NBAD ADCB FGB ENBD DIB Median
5%
NBAD ADCB FGB ENBD DIB Median Equity to assets Tier 1 ratio
Source: Deutsche Bank, Company data 2009 Source: Deutsche Bank Company data 2009


Financial Services
11 April 2010
Emirates NBD Hold

Reuters: ENBD.DU Bloomberg: ENBD UH Price Target (AED) 3.50
52-week range (AED) 4.68 - 2.38
Geared play on Dubai Price/price relative
16
12
8
The pros and cons of being the leading Dubai-based bank
We believe the bank benefited from its close relationship with the Dubai 4
government in the past, but these links may now carry risks. In our view, ENBD is 0
the most exposed of the UAE banks to Dubai government-related entities, and 10/07 4/08 10/08 4/09 10/09
hence is susceptible to any debt restructuring plans that may be announced. We Emirates NBD
also believe the Dubai economy is likely to be weaker than Abu Dhabi’s over the MSCI Arab (Rebased)
coming few years, which could result in muted volume growth trends.
Performance (%) 1m 3m 12m
Funding conditions likely to remain difficult Absolute 21.9 7.0 7.4
ENBD is dependent on wholesale funding markets, as reflected in its high MSCI Arab 4.2 9.1 38.5
loans/deposits ratio (125%). The bank has AED7.2bn debt coming due in 2010,
Stock data
equivalent to 2.4% in total assets (AED3.4bn of this amount was recently repaid).
Price Target (AED) 3.50
Dubai’s debt restructuring plans could make it difficult for the bank to refinance its Market cap (AED) 16,395
debts, which in turn could serve to crimp asset growth. Shares outstanding (m) 5,558
Free float (%) 0.0
Capital base not as strong as its peers MSCI Arab 527.9
A tangible common equity/assets ratio of 8% is below the peer group average
and in our view presents a more limited cushion against potential impairments. As Key indicators (FY1)
the leading Dubai-controlled bank, we believe ENBD may come under pressure to ROE Stated (AED) 1.6
provide financial support to local businesses. However, given the bank’s key Total Loans/Total Deposits (x) 120.0
systemic importance, we believe it would be a likely recipient of institutional Book value/share (AED) 4.9
support, if needed. Cost-Income Ratio (x) 36.2
Valuation is extremely sensitive to writedown assumptions Tier 1 Ratio (%) 11.7
benchmark year and discounting back at the cost of equity, which is based on a
risk-free rate of 7.0%, equity risk premium of 7.0% and beta of 1.0. We assume
long-term growth of 3.5% and factor potential additional writedowns of AED7.6bn
into our forecasts. Our target price of AED3.50 is equivalent to 0.9x 2010E
tangible book value. Upside risks include the bank’s strong distribution network
(useful for deposit-gathering), and the potential for synergies from the EBI-NBD
merger to continue to surprise positively. Downside risks include the possibility
that the contribution to earnings from associate companies declines. We regard
ENBD and Dubai’s fortunes as being closely intertwined.
EPS Stated (AED) 0.66 0.60 0.08 0.39 0.63
EPS Adjusted (AED) 0.67 0.59 0.08 0.39 0.63
P/E Adjusted (x) 4.1 5.0 37.6 7.6 4.7
DPS(AED) 0.28 0.20 0.04 0.10 0.15
Dividend Yield (%) 3.0 5.8 1.4 3.4 5.1
PBT (AEDm) 3,713 3,504 436 2,145 3,510
ROE Stated (%) 14.5 12.5 1.6 7.7 11.7
ROE Adjusted (%) 18.8 15.6 2.0 9.6 14.3
BVPS Stated (AED) 4.6 5.0 4.9 5.2 5.6
P/B Stated (x) 0.6 0.6 0.6 0.6 0.5
P/B Tangible (x) 0.8 0.8 0.8 0.7 0.6

EPS (stated)(AED) 0.66 0.60 0.08 0.39 0.63
Middle East
EPS (DB) (AED) 0.67 0.59 0.08 0.39 0.63
United Arab Emirates Growth Rate - EPS (DB) (%) -5.1 -12.5 -86.7 391.6 63.7
DPS (AED) 0.28 0.20 0.04 0.10 0.15
Tang. NAV p. sh. (AED) 3.62 3.93 3.86 4.16 4.65
Emirates NBD Shares in issue 5,558 5,558 5,558 5,558 5,558
Reuters: ENBD.DU Bloomberg: EMIRATES UH

Hold P/E (stated) 4.2 4.9 37.6 7.6 4.7
P/E (DB) 4.1 5.0 37.6 7.6 4.7
Dividend yield(%) 3.0 5.8 1.4 3.4 5.1
USDm 4,464
Dividend cover(x) 2.4 3.0 2.0 3.9 4.2
Company Profile
In 2007 Emirates Bank International merged with National Profit & Loss (AEDm)
Bank of Dubai to establish Emirates NBD. The largest bank in Net interest revenue 5,834 7,412 7,000 6,950 6,900
the UAE has an asset base of AED291bn and a 21% market Non interest income 2,549 3,503 3,465 3,450 3,400
share of loan and advances as of end-2009. The Bank Commissions 3,327 2,730 2,800 2,900 3,025
provides conventional and Islamic banking services to Trading Revenue -949 160 175 165 150
corporate, institutional and retail customers. The bank is Other revenue 170 614 490 385 225
majority-owned by the Investment Corporation of Dubai, with
Total revenue 8,382 10,915 10,465 10,400 10,300
a 56% stake. The stock has a foreign ownership limit of 5%.
Employee Costs 2,189 2,181 2,200 2,250 2,325
Other costs 1,445 2,060 1,983 1,937 1,885
Bad debt expense 1,374 3,009 5,871 4,103 2,625
Operating Profit 3,374 3,666 411 2,110 3,465
Pre-tax associates 339 -162 25 35 45
Pre-tax profit 3,713 3,504 436 2,145 3,510
Tax 0 0 0 0 0
Other post tax items -32 -158 0 0 0
Stated net profit 3,680 3,346 436 2,144 3,510
Goodwill 0 0 0 0 0
Extraordinary & Other items 64 -68 0 0 0
DB adj. core earnings 3,745 3,278 436 2,144 3,510

Customer Loans 205,271 211,760 210,000 212,500 220,000
Total Deposits 150,115 168,962 175,000 180,000 187,500
Tier 1 capital 20,381 26,654 25,739 27,421 30,135
Tier 1 ratio (%) 9 13 12 12 13
Credit Quality

Growth in revenues (%) 18 30 -4 -1 -1
Growth in costs (%) 34 17 -1 0 1
Growth in RWA (%) 26 -7 9 2 4
Net int. margin (%) 2.65 3.10 2.90 2.87 2.79
ROTE Decomposition
Revenue % ARWAs 4.30 5.22 4.97 4.68 4.52
Bad debts % ARWAs 0.70 1.44 2.79 1.85 1.15
Tax rate (%) 0.0 0.0 0.0 0.0 0.0

Emirates NBD
Company profile
Established in 2007 from the merger of National Bank of Dubai and Emirates International
Bank, ENBD is the largest bank in the UAE, with an asset base of AED281bn (2009).
Headquartered in Dubai, ENBD’s lending is skewed towards corporates (61%), followed by
retail (17%) and sovereign clients (22%). The bank’s funding base is primarily built on strong
deposits (AED 171bn, 64% of which are time deposits). The bank has market share of 19% in
assets and 21% in loans as of 2009. The bank is rated ‘A+’ by Fitch and ‘A2-‘by Moody’s.
Figure 134: Loan mix Figure 135: Assets mix
Others
Government 8%
22% Islamic banking
10%
Treasury
13%
Corporate
Corporate Retail banking
61% 17% 58%
Consumer
banking
11%
Source: Deutsche Bank, Company data 9M09 Source: Deutsche Bank, Company data 9M09
ENBD is listed on the Dubai Financial market. The bank is majority-owned by the Investment
Corporation of Dubai, with a 56% stake. The stock has a foreign ownership limit of 5%.
Current foreign ownership (ex GCC, ex Arabs) stands at 1.6%. The market capitalization of
the stock is USD4.4bn; the average daily trading value is around USD0.9m.
SWOT analysis
Strengths
Largest distribution network in the UAE, with 134 branches. ENBD’s retail market share
is 24%, above that of the overall business.
High systemic importance. As the largest UAE bank, we believe ENBD would receive
strong support from federal institutions, if needed.
Weakness
Weak capital base. A tangible common equity/assets ratio of 7.8% is one of the lowest
in the system and could be placed under further threat if the bank experiences a
generalized downturn in asset quality.
Stretched funding base. A loans/deposits ratio of 125% is indicative of the bank’s
wholesale financing needs. The bank has AED3.8bn debt coming due in 2010 (equivalent
to 1% of assets); with the bond market still seemingly closed to issuance by Dubai
corporates, these financing needs will need to be met through existing resources, likely
crimping potential loan growth.

Limited share liquidity. On average, ENBD trades AED0.65m per day. With foreign
ownership restricted to 5%, institutional investors may choose to ignore the shares
despite their low rating.
Opportunities
Successful restructuring of Dubai’s debt liabilities could provide a boost to the Emirate
and pave the way for further bond issuance. We believe ENBD would be a key
beneficiary under such a scenario, particularly if a federal guarantee were to be extended
Merger distractions likely to lessen. With much of the restructuring related to the EBI-
NBD merger now largely completed, the bank may now be more able to focus on
servicing existing and new customers, facilitating a recovery in lost market share and
boosting fee income generation.
Threats
Income from associates (contributing an average of 10% of net income over the past 4
years) could decline. For ENBD, this income stream is heavily dependent on the real
estate market and could remain depressed for a sustained period of time. There is also a
risk that the carrying value of these investments (largely the 48% Union Properties stake)
might need to be adjusted downwards.
Key banker to the Dubai government. Close ties with the Dubai government were
previously an asset to the ENBD, but may now put pressure on the bank’s capital base,
particularly if value adjustements on sovereign and quasi-sovereign exposures need to
be made.
Figure 136: ENBD has the highest sovereign exposure in Figure 137: Fees to revenue lowest in peer group
its loan book
25% 25%
20%
20%
15%
10%
15%
5%
0% 10%
Source: Deutsche Bank, company data 2009 Source: Deutsche Bank, company data 2009

Figure 138: Maturity profile (debt issued in USD m) Figure 139: Tangible equity-to-total assets ratio vs. peer
group
2,500 16.0%
2,000
12.0%
1,500
1,000
8.0%
500
0 4.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 NBAD ADCB FGB ENBD DIB Median
Source: Deutsche Bank; Company data Source: Deutsche Bank, company data 2009

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Financial Services
11 April 2010
Dubai Islamic Bank Sell

Reuters: DISB.DU Bloomberg: DIB UH Price Target (AED) 2.00
52-week range (AED) 3.33 - 1.72
Funding strength offset by real Price/price relative
estate concerns
12
10
8
6
High exposure to UAE real estate sector adds to asset quality uncertainty 4
40% of DIB’s loan book is to the UAE corporate real estate sector. While DIB has 2
been more cautious than its peers in recent quarters, the sharp decline in 0
underlying asset values could put pressure on the quality of these exposures. 4/07 10/07 4/08 10/08 4/09 10/09
Being 30%-owned by ICD, the bank may also have sizeable exposure to Dubai- Dubai Islamic Bank
based government-related entities, which may be looking to restructure their MSCI Arab (Rebased)
debts. Unlike peers, DIB provides asset quality information only on an annual
basis. We would also highlight the potential inflexibility of some of the bank’s Performance (%) 1m 3m 12m
Absolute -2.0 3.4 4.8
Shariah-compliant financing structures, which could prove a key factor in the MSCI Arab 4.2 9.1 38.5
event of borrower default.
Stock data
Earnings generation is sensitive to the performance of associated entities Price Target (AED) 2.00
Historically, a significant proportion of DIB’s earnings have been generated by the Market cap (AED) 9,030
bank’s associated companies (8% in 2007, 22% in 2008; 8% in 2009). Key Shares outstanding (m) 3,794
entities (notably Deyaar and Tamweel) are linked to the real estate market and are Free float (%) 0.0
MSCI Arab 527.9
likely to experience a continual challenging operating environment.
Funding strength is above average Key indicators (FY1)
DIB has a strong retail franchise, and has consequently been able to build up a ROE Stated (AED) -5.9
sizeable deposit base. The bank’s 76% loans/deposits ratio is the lowest in our Total Loans/Total Deposits (x) 76.2
coverage universe; the bank’s funding costs also compare favourably. Book value/share (AED) 2.1
Cost-Income Ratio (x) 42.6
Valuation and Risk Net interest cover (x) 9.4
We value the shares on a target price/book multiple basis, using 2012E as our Tier 1 Ratio (%) 11.3
benchmark year and discounting by the cost of equity, which is based on a risk-
free rate of 7.0%, equity risk premium of 7.0% and beta of 1.0. We assume long-
term growth of 3.5%, and factor in additional writedowns of AED3.4bn. Our
target price of AED2.00 is equivalent to1.0x 2010E tangible book value. Upside
isks include the shares’ high liquidity and low foreign ownership, which could
prove beneficial if sentiment towards the sector were to improve and the scope
for international operations were to boost growth.

EPS Stated (AED) 0.41 0.32 -0.13 0.04 0.31
EPS Adjusted (AED) 0.44 0.33 -0.12 0.04 0.31
P/E Adjusted (x) 3.6 7.1 -20.1 54.2 7.6
DPS(AED) 0.23 0.15 0.00 0.05 0.15
Dividend Yield (%) 3.2 6.2 0.0 2.1 6.3
PBT (AEDm) 1,431 1,179 -550 166 1,190
ROE Stated (%) 16.1 13.5 -5.9 2.1 13.9
ROE Adjusted (%) 17.4 14.0 -5.3 2.1 13.9
BVPS Stated (AED) 2.4 2.4 2.1 2.1 2.4
P/B Stated (x) 0.7 1.0 1.1 1.1 1.0
P/B Tangible (x) 0.7 1.0 1.1 1.1 1.0

EPS (stated)(AED) 0.41 0.32 -0.13 0.04 0.31
Middle East
EPS (DB) (AED) 0.44 0.33 -0.12 0.04 0.31
United Arab Emirates Growth Rate - EPS (DB) (%) -55.4 -25.6 -136.1 137.0 614.9
DPS (AED) 0.23 0.15 0.00 0.05 0.15
Tang. NAV p. sh. (AED) 2.35 2.36 2.08 2.13 2.39
Dubai Islamic Bank Shares in issue 3,794 3,794 3,794 3,794 3,794
Reuters: DISB.DU Bloomberg: DIB UH

Sell P/E (stated) 3.9 7.3 -18.0 54.2 7.6
P/E (DB) 3.6 7.1 -20.1 54.2 7.6
Target price AED 2.00 ROE(stated)(%) 16.1 13.5 -5.9 2.1 13.9
52-week Range AED 1.72 - 3.33 ROTE (tangible equity) (%) 17.4 14.0 -5.3 2.1 13.9
ROIC (invested capital) (%) 17.3 13.9 -5.3 2.1 13.9
Dividend yield(%) 3.2 6.2 0.0 2.1 6.3
USDm 2,458
Dividend cover(x) 1.8 2.1 nm 0.9 2.1
Company Profile
Established in 1975, DIB was the first Islamic bank in the Profit & Loss (AEDm)
GCC. The bank offers a range of Islamic commercial banking Net interest revenue 2,244 2,339 2,200 2,200 2,225
activities and investment banking activities, as well as asset Non interest income 1,000 998 995 995 1,015
management services. DIB is ranked as the largest Islamic Commissions 748 652 630 625 640
bank in the UAE in terms of total assets (AED84bn) with a Trading Revenue -144 40 110 105 100
5% market share of loans and advances as of 2009. The key Other revenue 396 306 255 265 275
shareholder is the Investment Corporation of Dubai, with a
Total revenue 3,245 3,337 3,195 3,195 3,240
30% stake. The stock has a foreign ownership limit at 15%.
Employee Costs 882 813 1,225 1,260 1,325
Other costs 537 629 827 601 170
Bad debt expense 521 732 1,754 1,232 625
Operating Profit 1,304 1,162 -610 101 1,120
Pre-tax profit 1,431 1,179 -550 166 1,190
Tax -2 7 0 0 0
Stated net profit 1,554 1,207 -500 166 1,190
Goodwill 0 0 0 0 0
Extraordinary & Other items 121 40 50 0 0
DB adj. core earnings 1,676 1,247 -450 166 1,190

Customer Loans 52,659 49,925 48,000 48,000 49,000
Total Deposits 66,427 64,196 63,000 63,500 64,500
Tier 1 capital 8,902 8,900 7,830 7,997 8,997
Tier 1 ratio (%) 11 12 11 11 13
Credit Quality

Growth in revenues (%) 1 3 -4 0 1
Growth in costs (%) -6 2 42 -9 -20
Growth in RWA (%) 19 -10 -3 1 2
Net int. margin (%) 3.20 3.51 3.54 3.64 3.63
ROTE Decomposition
Revenue % ARWAs 4.42 4.41 4.53 4.58 4.59
Bad debts % ARWAs 0.71 0.97 2.48 1.77 0.88
Tax rate (%) -0.2 0.6 0.0 0.0 0.0
Adj. Attr. earnings % ARWA 2.11 1.62 -0.72 0.15 1.59
+971 4 4283-261 rahul.shah@db.com ROTE (Adj. earnings/Ave. equity) 16.1 13.8 -6.1 1.3 13.1

Dubai Islamic Bank

Company profile
Dubai Islamic Bank (DIB) was established in 1975 and offers a range of Islamic commercial
and investment banking to its customers. It is the largest Islamic bank in the UAE in terms of
total assets (AED 85bn as of 2009). The bank has a diversified portfolio of subsidiaries
pertaining to various industries, including financial services, real estate and transportation.
The bank has a distribution network of 57 branches in the UAE, in addition to 15 branches in
Pakistan. The bank is rated ‘BBB-‘ by Standard & Poor’s and ‘Baa1’ by Moody’s (long-term
issuer ratings).
Figure 140: Loan mix Figure 141: Assets mix by business segment
G over nm ent
Ret a il
8%
12%
Ret a il O t her s
16% 29%
Rea l es t a t e Cor por a t e &

6% Inves t m ent
ba nking
Cor por a t e 53%
76%
Investment Corporation of Dubai is the core shareholder, with a 30% stake. The stock has a
foreign ownership limit of 15%. The current foreign ownership (ex GCC, ex Arabs) stands at
1.3%. The market capitalization of the stock is USD2.7bn; the average daily trading value is
around USD6.6m
SWOT analysis
Strengths
Largest UAE Islamic Bank. The bank has been able to use its Shariah-compliant approach
to attract significant volumes of retail deposit funds. Accordingly, its 78% loans/deposits
ratio is one of the lowest in the system, and DIB has limited the need for wholesale
funding needs (in addition, DIB’s sukuk bonds do not mature until 2012).
Loan growth was reduced ahead of peers. Partly due to its strong knowledge of the UAE
real estate market, DIB started to trim growth of its loan book in advance of its peers.
This could limit the downside risk to the portfolio from the economic slowdown, in our
view.
Weakness
High real estate exposure. The real estate and contracting sectors account for 40% of
DIB’s loan book, significantly higher than the peer group. In addition, the Shariah-
compliant structure of these exposures may make it difficult for the bank to foreclose on
assets where borrowers have delayed payments.

The bank has been aggressive in opening new branches, which, combined with a recent
cautious approach to taking on new business, has resulted in the cost/income ratio rising
to 41%, the highest in the peer group.
Opportunities
DIB has significant scope to increase business volumes in Pakistan, a country with low
levels of banking penetration, and where DIB may have an experience advantage relative
to local Shariah-compliant banks.
DIB’s strong deposit funding base may allow it to experience above-average loan growth
if the economic environment and its own risk appetite improve.
Threats
The recent strategy of conventional banks in opening an Islamic window as part of their
operations could increase competition for Shariah-compliant banking services.
Over the past three years DIB has generated around 13% of its earnings from its
associated companies, largely in the real estate and capital markets sectors. Income
from these investments is likely to be structurally lower in coming years, reflecting the
difficulties of the UAE real estate markets, while revenues from capital issuance may
also remain depressed
Figure 142: Free funds (demand deposits and equity) to Figure 143: Cost of funds – DIB vs. sector
total assets
50% 4.0%
40% 3.5%
30% 3.0%
20% 2.5%
10% 2.0%
0% 1.5%
NBAD ADCB FGB ENBD DIB Median 2007 2008 2009
DIB Sector (ex DIB)
Source: Deutsche Bank; Company data (2009 data) Source: Deutsche Bank; Company data sector represents coverage universe
Figure 144: Coverage ratio is below that of peers Figure 145: DIB is more exposed to financial
investments than its peers (investments/ assets)
200% 25%
160% 20%
120% 15%
80% 10%
40% 5%
0% 0%
Source: Deutsche Bank; Company data; Source: Deutsche Bank; Company data

Appendix A: Macroeconomic
forecasts
After shrinking by an estimated 1.2% in 2009, we believe real GDP growth will recover to
3.7% in 2010 and 4.3% in 2011. We believe the current account and fiscal balance will
improve, based on our assumption that oil prices will average USD80/bbl in 2010 and
USD85/bbl in 2011. We believe the currency peg is well anchored.
Figure 146: Macroeconomic data

UAE 2002 2003 2004 2005 2006 2007 2008 2009E 2010F 2011F
Nominal GDP (USDbn) 74.3 87.6 105.6 138.0 175.2 206.5 254.6 222.9 242.0 273.8
Real GDP growth (%) 2.6 11.9 16.2 16.8 14.9 6.0 7.4 -1.2 3.7 4.3
GDP per capita (USD) 22,183 24,670 28,073 33,605 41,430 46,022 53,436 45,423 47,878 52,592
C/A balance (%GDP) 4.6 8.6 10.0 17.6 20.6 9.5 8.8 3.9 6.6 9.8
Fiscal Balance (%GDP) 10.5 2.6 10.5 20.0 28.4 25.2 21.7 4.0 14.2 29.5
Inflation (Pavg.) 2.9 3.1 5.0 6.2 9.3 11.1 12.3 1.5 3.5 4.5
FX reserves(USDbn) 14.9 14.7 18.2 20.9 27.5 77.2 31.6 35.9 36.0 36.0
Average oil price/bbl (USD $) 41.5 56.6 66.2 72.4 99.7 61.6 70.5 80.0
AED/USD (eop) 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67 3.67
Source: Haver Analytics, IMF, Deutsche Bank Global Markets Research
Figure 147: UAE real GDP growth – history and forecast
18 (%)
15
12
a ver a ge gr owt h r a t e
9 7.5%
0
2001 2003 2005 2007 2009E 2011F
-3
Source: Haver Analytics, IMF, Deutsche Bank Global Markets Research

Appendix B: Additional detail

on writedown calculations
On average, we believe writedowns equivalent to 4.6% of assets are possible under our
base case assumptions (7.8% under our stress test assumptions). Our base case scenario
centres on assumptions of a mild recovery in economic growth, but with real estate prices
falling 5-10% further due to supply-demand mismatches, and sector volume growth
remaining muted. Our stress test assumes economic growth remains weak, with real estate
prices falling by a further 20-25% and sector volume growth moving into negative territory.
Further details on the methodology we have employed to get to these results are presented
on the following pages.
Base case writedowns scenario

Direct real estate holdings, Dubai World exposures and retail loans are the asset classes
where we expect carrying values to be most at risk, although in absolute terms it is real
estate-related assets and unsecured retail lending that are likely to be the biggest
contributors to writedowns, in our view.
Figure 148: Gross writedowns as a % of exposure by Figure 149: Gross writedowns mix by asset class – base
asset class – base case case
% of write downs As s oc ia t e Cor por a t e RE
25%
inves t m ent s loa ns
3% 20%
20% DW expos ur es
12%
Ret a il
15%
m or t ga ges
4%
10%
RE inves t m ent s
5% 6%
0%
Ret a il -
Invt & dev
Government
Services
Trading
Manufacturing
Energy
properties
exposures
Mortgages
associates
Corp RE loans
unsecured
Retail-
Retail-
U ns ec ur ed
Inv in
DW
loa ns O t her loa ns

30% 25%
Our base case writedown assumptions on a bank-by-bank basis are presented below. For
further details on the calculations, see Figure 170 through Figure 174.

Figure 150: Gross writedowns as a % of assets and net Figure 151: Gross writedowns mix by bank-base case
writedowns as a % of shareholders’ equity
7% 50% 100%
6%
40% 80%
5%
4% 30% 60%
3% 20% 40%
2%
10% 20%
1%
0% 0% 0%
NBAD ADCB FGB E NBD DIB NBAD ADCB FGB E NBD DI B
Invt & dev pr oper t ies Inv in a s s oc ia t es DW expos ur es
% of a s s et s (LHS ) % of s ha r eholder s equit y (RH S ) Ret a il- uns ec ur ed loa ns
Stress test writedown scenario

Summarised results of our writedown scenario are presented below. At the asset class level,
we see writedowns ranging from 35% for Dubai World and directly held real estate assets to
0% for sovereign loan exposures. In aggregate terms, real estate-related exposures account
for 43% of all writedowns, versus just 30% in our base case scenario.
Figure 152: Gross writedowns as % exposure by asset Figure 153: Gross writedowns mix by asset class –
class – stress test stress test
40% % of write downs As s oc ia t e
inves t m ent s
3% Cor por a t e RE
30%
DW expos ur es loa ns
16% 32%
20%
10%
Ret a il
0% m or t ga ges
Ret a il -
Invt & dev
Government
Services
Trading
Manufacturing
6%
associates
Corporate RE
Energy
exposures
properties
Mortgages
unsecured
Uns ec ur ed
Retail-
Retail-
Inv in
DW
loans
loa ns
21% RE inves t m ent s
O t her loa ns
5%
17%
At the entity level, we believe ADCB and DIB will likely experience the highest level of
writedowns, NBAD the least.

Figure 154: Gross writedowns as % assets and net as % Figure 155: Writedowns mix by bank-stress test
shareholders’ equity
14% 100% 100%
12%
80% 80%
10%
8% 60% 60%
6% 40% 40%
4%
20% 20%
2%
0% 0% 0%
NBAD ADCB FG B E N BD DI B NBAD ADCB FG B E NBD DI B
% of a s s et s (LHS ) % of s ha r eholder s equit y (RH S ) I nvt & dev pr oper t ies I nv in a s s oc ia t es DW expos ur es
Ret a il- uns ec ur ed loa ns
We highlight below the methodology we have employed in arriving at these potential loss
numbers.
Real estate-related lending

For our coverage universe, real estate loans account for around 26% of total lending; 19% of
loans are to the corporate real estate sector, 5% are loans to contractors; retail mortgage
loans are a further 2%.
Lending to the corporate real estate sector

The basic approach we have taken in relation to this asset class is to compare the value of
the loan with our estimate of the value of the underlying collateral. Where the collateral falls
short of the loan amount we take 75% of the value of this difference to be a loss. This 75%
factor is employed to take account of the possibility that a borrower will continue to service a
loan even if it is ‘under water’.
Lending to the corporate real estate sector typically accounts for 19% of the overall lending
for our coverage universe. Our core assumptions in relation to this loan segment are that
average LTVs at loan inception were running at 56% before June 2008 (based on 75%
average loan to construction cost and 25% developer margin assumptions) and at 51%
subsequently (based on 60% loan to construction cost and 15% developer margin
assumptions). We assume that loans smoothly amortise over a typical term of five years,
while property prices track trends described by the Landmark property index. In our model
we have incorporated a distribution around these average assumptions to reflect loans with
higher/lower LTVs and property prices.
Given the generally low level of LTVs and short loan durations we believe the banks have
limited risks in relation to completed projects. The key driver of risk, in our view, is the
exposure that the banks may have to projects that are not completed and/or not sold. In such
a scenario, the value of the underlying collateral may fall short of the loan.
We believe this is a realistic scenario, currently. With a lot of projects coming on stream,
there is a risk that new supply outstrips end demand. We note that many contractors are
experiencing much higher levels of delinquencies in their trade receivables, suggesting
developers are themselves struggling to manage their cash flows. We also note that many
construction projects have already been put on hold.

Figure 156: Arabtec – proportion of delayed, impaired or Figure 157: Proportion of construction projects on hold
provided for receivables
75% 35%
60% 30%
25%
45%
20%
30%
15%
15%
10%
0% 5%
2006 2007 2008 2009
0%
Past due but not impaired Impaired Provisions Qatar Oman KSA Kuwait Bahrain UAE
Source: Deutsche Bank, Company data Source: Deutsche Bank, MEED
To model this risk we have deployed a simple probability tree, as described below. The
assumptions underlying our base-case scenario are consistent with three-quarters projects
reaching completion without any disruption; for our stress-test scenario the corresponding
figure is around 65%.
Figure 158: Corporate real estate probability and value assumptions
All projects All
Good vs bad location G B
Finished vs not finished F NF F NF
Sold vs not sold S NS S NS S NS S NS
Base case
Value* 95% 71% 71% 53% 62% 46% 43% 32%
Mix 69% 8% 7% 2% 7% 3% 3% 2%
Stress test
Value* 75% 53% 53% 37% 38% 26% 23% 16%
Mix 54% 10% 8% 3% 10% 5% 6% 5%
Source: Deutsche Bank * as % current real estate values
Our calculations point to average losses equivalent to 3.2% of corporate real estate loans
under our base case assumptions, and 13% under our stress test. We believe DIB is most
exposed to losses in this area, NBAD the least
Lending to contractors
We estimate that lending to contractors accounts for 5% of total lending for our coverage
universe. We have recently observed a sharp uptick in delinquent receivables balances,
which in turn may result in contractors struggling to pay down bank loans. For the banks’
contractor-related exposures, we assume that losses are most likely for remaining exposure
to loans extended during the boom years of 2007 and 2008. (Our model assumes a maturity
term of four years).

For this loan category our calculations point to writedowns equivalent to 13.4% of lending
(17% writedowns in our stress test). We believe NBAD is most exposed to losses in this
area, DIB the least.
Figure 159: DSI receivables analysis Figure 160: Contractor exposure loss profile – base case
and stress test
100%
80% 60%
60% 45%
40%
30%
20%
15%
0%
2006 2007 Q408 Q109 Q209 Q309 Q409 0%
1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09
Neit her Past due nor impaired <30 days 30-60 days 60-90 days >90 days
Base case St ress t est
Source: Deutsche Bank, Company data Source: Deutsche Bank
Retail mortgage lending

These loans typically account for 2% of our coverage universe’s loan exposure. We have
employed the same methodology as applied to corporate real estate loans, adjusted for
significant differences in the structure of lending.
Our core assumptions in relation to this loan segment are that average LTVs at loan inception
were running at 90% before June 2008 and at 80% subsequently. We assume that loans
typically have a term of 20 years, while property prices track the Landmark index. In addition,
we assume a dispersion of loans around our core LTV and property price assumptions.
Our analysis indicates that the bulk of mortgage loan-related losses relate to those loans
extended during the boom years of 2008. Banks that were particularly active during this
period might be expected to incur higher losses than their peers.
For this class of loans our base case assumes losses averaging 11% of gross exposure. Our
stress test assumes a loss rate of 27%. We believe ADCB is most exposed to losses in this
area, NBAD the least.

Figure 161: Retail mortgages – loss profile by vintage and tranche (base-case scenario)
50%
40%
30%
20%
10%
0%
4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
Low er LTV Higher prices
Low er LTV & Higher prices Average
Higher LTVs Low er RE price
Higher LTV & Low er RE price
Other lending
Loans with relatively direct links to the real estate cycle typically comprise 26% of the total
loan portfolio for the banks under our research coverage.
However, given the importance of real estate to the UAE economy (the sector is thought to
employ over one-third of the UAE workforce; for example), negative trends in this area are
likely to be reflected more broadly across the banks’ loan book. For other lending, we believe
there are four key drivers of risk:
Sector mix – We believe certain sectors (such as unsecured lending to individuals) carry
a higher risk of impairment than others.
Geographic mix – The economic downturn has hit Dubai harder than Abu Dhabi, and we
adjust for this in our loan quality forecasts.
Loan ageing – We regard lending extended during the later part of the UAE’s growth
spurt (particularly 2008) as more at risk of impairment than loans granted previously
(which have also had more time to season) and more recent credit (due to the sharp
post-boom tightening of underwriting standards).
Track record – Certain banks may have an inferior loan quality track record to others due
to differences in risk appetite and risk management — we believe such differences are
likely to persist.
On average, we see writedowns equivalent to 5.1% of non-real estate loans in our base case
(6.2% in our stress test). We note that losses at these levels are broadly in line with the
current experience in the USA, UK and Spain, countries which have also experienced a
combination of slower economic growth and weaker real estate prices in recent years (see
Figure 180-Figure 182).
A key driver of these writedowns is retail loan exposures. We note that both NBAD and
ENBD have already disclosed high levels of loan delinquencies in this area. RAK Bank, which
has a loan book heavily (98%) skewed towards retail customers, has also experienced a
downturn in the quality of its loan book, although stated NPLs/loans remain low at 2%.

A summary of our loan writedown assumptions by bank and by economic sector are
presented in Figure 164 below.
Figure 162: ENBD and ADCB retail NPLs/ retail loans Figure 163: RAK Bank NPLS/ loans and past due but not
ratios impaired loans (as a % of loans)
12%
10.0%
10%
8.0%
8%
6.0%
6%
4.0%
4%
2.0%
2%
0.0%
0% 2008 2009
2008 2009
ENBD ADCB NPL/ loans Past due not im paired/ loans
Source: Deutsche Bank; Company data Source: Deutsche Bank
Figure 164: Gross writedowns by loans by economic sectors – base case

AEDm NBAD ADCB FGB ENBD DIB
W/downs Mix % W/downs Mix % W/downs Mix % W/downs Mix % W/downs Mix %
Government loans 0 0% 0 0% 0 0% 0 0% 0 0%
Corporate real estate 1,947 46% 1,508 19% 1,418 29% 2,042 20% 825 23%
Manufacturing 124 3% 97 1% 63 1% 376 4% 598 17%
Services 585 14% 1,533 19% 340 7% 2,283 22% 276 8%
Energy 161 4% 113 1% 14 0% 813 8% - 0%
Trading 207 5% 137 2% 140 3% 1,460 14% 453 13%
Retail mortgages 139 3% 595 7% 199 4% 436 4% 222 6%
Retail unsecured 1,082 25% 4,036 50% 2,713 56% 2,832 28% 1,179 33%
Total 4,244 100% 8,019 100% 4,887 100% 10,243 100% 3,554 100%
W/downs % of total loans 3.1% 6.6% 5.3% 4.6% 6.9%

Source: Deutsche Bank;
Dubai GRE exposure

One area of risk that has come sharply into focus in recent months relates to the loan and
bond exposures that the UAE banks may have to entities related to (but not guaranteed by)
the Dubai government. After declining sharply towards the end of 2009, Dubai GRE-related
bond prices appear to have improved significantly in recent weeks, in line with a recent
tightening of CDS spreads. The positive reaction to Dubai World’s recent debt restructuring
programme also augers well.

Figure 165: Dubai GRE bond prices Figure 166: Regional CDS spreads – Dubai, Abu Dhabi,
Qatar, KSA
100 bps
500
90 400
300
80
200
70
100
60
0
J a n-09 Ma r -09 Ma y -09 J ul-09 S ep-09 N ov-09 J a n-10 Ma r -10
Duba i Abu Dha bi Qatar S a udi Ar a bia
Source: Deutsche Bank; Bloomberg Note: Series generated from average price of ten bond securities issued Source: Deutsche Bank; Prices as of March 28;; Bloomberg
by various Dubai GRE’s. Prices as of March 28.
While the recent announcements from Dubai World, Nakheel and the Dubai government are
helpful, disclosure in this area remains relatively poor, both in terms of the extent and nature
of the banks’ exposures, and the precise nature of the restructuring plans. Our assumptions
in relation to Dubai World exposures, and the potential writedowns required, are presented in
Figure 167
For our base case, we have assumed a 15% haircut, a slight discount to the composite of
bond prices presented above, reflecting the strong likelihood that the banks’ loans will
mature subsequent to bondholders and certain other creditors being repaid.
In our stress-test scenario, we have assumed a haircut of 35%.
Figure 167: Dubai World loan losses by entity

Total exposure Potential losses
AEDm AEDm as % Dubai GRE as % total assets

exposure
NBAD 900 135 15% 0.1%
ADCB 9,000 1,350 15% 0.8%
FGB 1,750 263 15% 0.2%
ENBD 13,500 2,025 15% 0.7%
DIB 5,000 750 15% 0.9%
Investments in associates
Averaging 1.4% of total assets, the UAE banks’ associate investments are equity-accounted,
meaning that the banks would not adjust the carrying value of these assets downwards
unless there were viewed to be a permanent diminution in value of the assets. For example,
we note that ENBD wrote down the value of its 48% Union Properties stake by 316m (13%)
in Q409.
In order to determine the risk of further impairment in the asset class, we have compared the
carrying value of associate investments to their market value wherever possible. For unlisted
associates, we have assumed the current market value would be half the carrying value for
Dubai-based banks and two-thirds of the carrying value for the Abu Dhabi-based entities.
These values are based on the current value of the DFM and ADX general indices versus their
five-year averages.

In our base-case scenario, we have assumed a writedown of associate investments

equivalent to 20% of the estimated gap between carrying value and current market value. In
our stress-test scenario we have assumed a writedown equivalent to 40% of this estimated
gap.
Figure 168: Potential writedowns on associates – base case

Key listed associates Other associates Total
associates
Carrying Market Carrying Estimated Difference in % Potential % of total

value value value market value carrying and writedown writedown assets
market values applied
NBAD - - - - - 20% - 0.00%
ADCB 4,475 3,285 108 72 1,226 20% 245 0.15%
FGB - - 561 374 187 20% 37 0.03%
ENBD 2,442 833 3 1 1,610 20% 322 0.11%
DIB 3,222 1,242 1,074 537 2,516 20% 503 0.60%
Source: Deutsche Bank Company data. * Includes RHB Capital for ADCB, UPP for ENBD, Deyaar and Tamweel for DIB.
Investment and development properties

On average, investment and development properties account for 1.1% of our coverage
universe’s total assets.
Of the banks that we cover, only ADCB, FGB, ENBD and DIB have investment property
exposure. DIB carries these assets at historical cost, while the other three banks perform an
annual fair value exercise. However, there is a limited degree of transparency associated with
these fair value adjustments. In order to facilitate a comparison of current carrying values
across the companies we have assumed all cash transactions (additions and disposals) are
conducted at market value. We assume subsequent interim changes in market value mirror
those of the Landmark property index.
Of the banks under our coverage, only DIB has exposure to development properties. These
are accounted for on a cost basis. We have applied the same methodology to determine the
current market value of these development properties, as described above.
Based on this approach, we believe losses equivalent to 23% of current carrying values are
possible under our base case assumptions, while losses could average 35% under our stress
test conditions. We believe DIB and FGB are the most exposed in this area, NBAD the least.
Loans to the Saad Group and Ahmad Hamad Algosaibi and

Brothers Company
Except DIB all the banks under coverage have exposure to Saad and Algosaibi Groups. ADCB
has disclosed provisions close to 60% of gross exposures as at end-09. We have assumed
that FGB has provided for two-thirds of its exposure as at end-09 and NBAD 55%, while for
ENBD we have assumed a 60% provisioning level. In our forecast, we assume the banks to
have achieved 100% provisioning against these balances by end-2010.
Figure 169: Exposure to Saad and Algosaibi Group

Summary (AED m) Saad and Algosaibi As % loans Provision taken in Provisions to be % of loans % of equity
exposure 2009 taken in 2010 E
NBAD 32 0.0% 19 13 0.0% 0.1%

ADCB 2,236 1.9% 1,300 936 0.8% 6.2%
FGB 382 0.4% 250 132 0.1% 0.7%
ENBD 1,285 0.6% 771 514 0.2% 2.4%
DIB 0 0.0% na 0 0.0% 0.0%
Source: Deutsche Bank Company data 2009 Note: Provisioning taken by FGB, NBAD and ENBD is estimated.

Bank-by-bank summary of writedown assumptions

Figure 170: Detailed loan writedown for NBAD
Asset Balance sheet Base Case -writedown assumption Stress test - writedown assumptions
amount
2009 AED m % of assets AEDm as % exposure as % total AEDm as % exposure as % total

Government loans 16,733 9% 0 0% 0% 0 0% 0%
Corporate real estate 29,421 15% 1,947 6.6% 45% 4,385 14.9% 58%
Manufacturing 6,871 3% 124 1.8% 3% 140 2.0% 2%
Services 33,980 17% 585 1.7% 13% 659 1.9% 9%
Energy/others 14,766 8% 161 1.1% 4% 188 1.3% 2%
Trading 8,540 4% 207 2.4% 5% 224 2.6% 3%
Retail - mortgages 1,423 1% 134 9.4% 15% 378 26.6% 5%
Retail - unsecured loans 23,841 12% 1,082 4.5% 25% 1,298 5.4% 17%
Total loans 135,574 69% 4,239 3.1% 97% 7,271 5.4% 96%
Dubai World exposure* 900 0.5% 135 15.0% 3% 315 35.0% 4%
Invt and develop property 0 0% 0 0% 0% 0 0% 0%
Investment in associates 0 0% 0 0% 0% 0 0% 0%
Other assets 57,713 29% 0 0% 0% 0 0% 0%
Total (gross) 4,374 2.2% 100% 7,586 3.9% 100%
Less: provisions (2,658) (2,658)
Total (net) 196,845 1,717 0.9% 4,928 2.5%
Source: Deutsche Bank, Company data (2009) Note :* DW exposure is a part of loans.; Loan categories may be reclassified to facilitate between banks
Figure 171: Detailed loan writedown for ADCB

amount
2009 AED m % of assets AEDm as % of as % total AEDm as % of as % total

exposure writedowns exposure writedowns
Manufacturing 2,578 2% 97 3.8% 1% 109 4.2% 1%
Services 43,456 27% 1,533 3.5% 15% 1,724 4.0% 10%
Energy/others 3,356 2% 113 3.4% 1% 132 3.9% 1%
Trading 1,475 1% 137 9.3% 1% 148 10.1% 1%
Retail - mortgages 3,940 2% 651 16.5% 7% 1,334 33.9% 8%
Total loans 120,840 75% 8,075 6.7% 82% 12,758 10.6% 76%
Dubai World exposure* 9000 6% 1,350 15% 14% 3,150 35.0% 19%
Invt and develop property 549 0.3% 235 43% 2% 285 51.8% 2%
Investment in associates 4,583 3% 245 5% 2% 574 12.5% 3%
Other assets 30,005 19% 0 0% 0% 0 0% 0%
Total (gross) 9,905 6.2% 100% 16,767 10.5% 100%
Total (net) 160,209 5,673 3.5% 12,535 7.8%

Figure 172: Detailed loan writedown for FGB

amount

Manufacturing 2,670 2% 63 2.4% 1% 71 2.7% 1%
Services 15,051 12% 340 2.3% 5% 383 2.5% 4%
Energy/others 438 0.3% 14 3.1% 0.2% 16 3.7% 0%
Trading 4,658 4% 140 3.0% 2% 152 3.3% 1%
Total loans 92,916 74% 4,887 5.3% 79% 7,759 8.4% 76%
Dubai World exposure* 1,750 1% 263 15.0% 4% 613 35.0% 6%
Invt and develop property 6,000 5% 1,013 16.9% 16% 1,773 29.5% 17%
Investment in associates 561 0.4% 37 6.7% 1% 75 13.3% 1%
Other assets 29,086 23% 0 0% 0% 0 0% 0%
Total (gross) 6,200 4.9% 100% 10,220 8.1% 100%
Total (net) 125,473 3,670 2.9% 7,690 6.1%
Figure 173: Detailed loan writedown for ENBD

amount

Manufacturing 9,203 3% 376 4.1% 3% 423 4.6% 2%
Services 51,176 18% 2,283 4.5% 18% 2,568 5.0% 12%
Energy/others 22,586 8% 814 3.6% 6% 949 4.2% 4%
Trading 22,530 8% 1,460 6.5% 11% 1,570 7.0% 7%
Retail - mortgages 4,410 2% 378 8.6% 5% 1,085 24.6% 5%
Total loans 221,296 79% 10,185 4.6% 79% 15,947 7.2% 73%
Dubai World exposure* 13,500 5% 2,025 15.0% 16% 4,725 35.0% 22%
Invt and develop property 703 0.2% 333 47.3% 3% 403 57.3% 2%
Investment in associates 2,445 1% 322 13.2% 3% 644 26.3% 3%
Other assets 63,815 23% 0 0% 0% 0 0% 0%
Total (gross) 12,865 4.6% 100% 21,719 7.7% 100%
Total (net) 281,576 7,590 2.7% 16,444 5.8%

Figure 174: Detailed loan writedown for DIB

amount

Corporate real estate 20,969 25% 825 3.9% 15% 2,627 12.5% 27%
Manufacturing 10,244 12% 598 5.8% 11% 673 6.6% 7%
Services 4,643 6% 276 5.9% 5% 311 6.7% 3%
Energy/others - 0% 0 0% 0% 0 0.0% 0%
Trading 3,559 4% 453 12.7% 8% 491 13.8% 5%
Total loans 51,873 3,495 6.7% 6,126 11.8%
Dubai World exposure* 5,000 6% 750 15.0% 14% 1,750 35.0% 18%
Invt and develop property 2,368 3% 650 27.4% 12% 923 39.0% 9%
Investment in associates 4,646 6% 503 10.8% 9% 1,006 21.7% 10%
Other assets 25,534 31% 0 0% 0% 0 0% 0%
Total (gross) 5,398 6.5% 100% 9,805 100%
Total (net) 82,915 3,449 4.2% 7,857 9.5%

Appendix C: Loan quality

outlook
Across the coverage universe NPLs/ loans currently averages 3.3%. We see this figure
increasing to 8.0% in 2011 with NBAD (3.5%) and DIB (12.2%) representing the extremes.
Figure 175: NPLs/ loans ratios 2009-12E Figure 176: Provision coverage ratios 2009-12E
14% 200%
12%
160%
10%
8% 120%
6% 80%
4%
40%
2%
0% 0%
NBAD ADCB FG B E NBD DIB Media n NBAD ADCB FG B E NBD DI B Media n
2009A 2010E 2011E 2012E 2009A 2010E 2011E 2012E
Further justification for our view that NPLs are likely to rise is presented below.
Additional loan quality disclosures

As well as disclosures regarding volumes of non-performing loans, many of the UAE banks
also provide information regarding loans which are past due but not impaired, and also loans
for which terms have been renegotiated.
These additional categories may provide an indication of the volume of loans that may
ultimately be regarded as non-performing. While the average NPLs/ loans ratio is 3.3%, the
combination of these three categories of loans is around three times this level. The
incremental volume of such loans (AED38bn) is broadly in line with our own base-case
writedown assumptions (although these encompass a broader range of assets).
Figure 177: Potential shortfall in provisions if past due but not impaired and renegotiated loans ultimately become
non-performing
Summary Past due
as % of
as a % not Renegotiat as a % as a % Existing Provision
NPLs Total common
loans impaired ed loans loans assets provisions shortfall
equity
loans
NBAD 1,687 1.3% 3,324 3,183 8,194 6.2% 4.2% 2,658 5,536 34%
ADCB 6,242 5.4% 4,248 2,915 13,405 11.5% 8.4% 4,232 9,173 61%
FGB 1,451 1.6% 3,422 2,456 7,329 8.1% 5.8% 2,530 4,799 26%
ENBD 5,831 2.7% 3,475 10,643 19,948 9.3% 7.1% 5,948 14,000 64%
DIB 3,107 6.2% 3,634 1,034 7,776 15.6% 9.2% 1,948 5,827 65%
Total 18,317 3.0% 18,104 20,231 56,652 9.4% 6.7% 17,316 39,336 49%
Source: Deutsche Bank; Company data 2009 Note:. ADCB – Renegotiated loans are estimated.

Western banks operating in the region have experienced a sharp deterioration in loan
quality
Both HSBC and Standard Chartered have sizeable operations in the Middle East, including
significant exposure to the UAE. HSBC Middle East had extended 61% of its AED83bn loans
to UAE borrowers as of end-09; Standard Chartered‘s Middle East & Other Asia division had
loan volumes of AED68bn.
Below, we present a comparison of these banks’ NPLs/ loans ratios against those currently
presented by our coverage universe, and our projections. We also restate HSBC and
Standard Chartered data on the aggressive assumption that all divisional NPLs originated
from the UAE.
We highlight that relative to foreign players, such as HSBC and Standard Chartered, local UAE
banks would be in a position to enjoy higher levels of institutional support in cases of
systemic stress. On this basis, we believe NPLs/ loan forecast can be justified.
Figure 178: Current NPLs/ loans and past due but not Figure 179: NPLs/ loans of locally active international
impaired/ ;loans of UAE banks peers
14% 14%
12% 12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
NBAD ADCB FG B E NBD DIB Ma s hr eq ADIB 0%
NBAD ADCB FGB ENBD DIB HSBC* Stanchart*
NP Ls / loa ns NP Ls plus pa s t due not im pa ir ed/ loa ns NPLs/ loans At peak
Source: Deutsche Bank Company data 2009 Source: Deutsche Bank, Company data 2009. Note: *-Peak based on assumption that all divisional NPLs are
in UAE
Experience of other countries hard hit by the credit crunch

The UAE has not been alone in experiencing a combination of slowing growth, falling real
estate prices, and rising loan delinquency. In Figure 180, Figure 181, and Figure 182, we
present asset quality data from Spain, the UK, and the United States, respectively. Relative to
these economies we note that the UAE has significantly more resources at its disposal with
which to stimulate the economy or provide more direct support to the local banking system.
Neverthelss, the data strongly suggest that banking asset quality metrics in the UAE could
deteriorate significantly.

Figure 180: Spain – NPLs/ loans and real estate prices Figure 181: UK – NPLs/ loans and real estate prices
130 6.0% 10000 6.0%
5.0%
120 9500 5.0%
4.0%
110 9000 4.0%
3.0%
100 8500 3.0%
2.0%
90 8000 2.0%
1.0%
80 0.0% 7500 1.0%

2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009
NP Ls r a t io (r hs ) Hous ing P r ic e I ndex (lhs ) NP Ls r a t io (r hs ) Hous ing P r ic e I ndex (lhs )
Source: Deutsche Bank; IMF;, Bank of Spain; Bloomberg;, Ministerio de vivienda Source: Deutsche Bank; IMF; Bank of England, Bloomberg, Nationwide
Figure 182: US – NPLs/ loans and real estate prices Figure 183: Banking sector stock prices in these markets
compares with UAE
200 4.5% 120%
3.6% 100%
175
2.7% 80%
150
1.8% 60%
125
0.9% 40%
100 0.0% 20%

2004 2005 2006 2007 2008 2009 J a n-08 Ma y -08 S ep-08 J a n-09 Ma y -09 S ep-09 J a n-10
NP Ls r a t io (r hs ) Hous ing P r ic e I ndex (lhs ) DFM ba nks ADX ba nks Aver a ge ba nks (U S ,U K,S pa in)
Source: Deutsche Bank; IMF; Federal reserve; Case Shiller, Bloomberg Source: Deutsche Bank,, Bloomberg
Previous banking crises

While UAE banks have undoubtedly had their challenges over the past few years, it would be
difficult to argue that a systemic banking crisis has occurred. We note that the banks have
been recipients of significant liquidity support; many banks have also received capital
injections. While the near-term outlook for the banks is likely to remain challenging, we
believe the banking system (in context of a supportive institutional plan) will be strong
enough to weather any future squalls.
Purely for illustrative purposes, we present IMF data in Figure 184 and Figure 185 looking at
the impact on asset quality of previous banking crises around the globe. While there is
significant variation in the data, the median level of peak NPLs/loans was found to be 30%
This outcome is clearly worse than we have projected (even under our stress-test scenario),
reflecting our view that the banks will be able to successfully steer through the current period
of difficulty given likely strong institutional support.

Figure 184: Prior banking crises – distribution of peak Figure 185: Prior banking crises – distribution of gross
NPLs/ loans ratios fiscal costs (as % GDP)
35% 40%
30% 35%
30%
% T ot a l oc c ur enc es
% T ot a l oc c ur enc es
25%
25%
20%
20%
15%
15%
10% 10%
5% 5%
0% 0%
0-5 5-15 15-25 25-35 35-45 45-55 55-65 65-75 Mor e 0-5 5-15 15-25 25-35 35-45 45-55 Mor e
P ea k N P Ls / Loa ns r a t io (%) G r os s f is c a l c os t / G DP (% )
Source: Deutsche Bank ;IMF data Source: Deutsche Bank; IMF data

Appendix D: Potential
regulatory reform
One of the key regulatory changes implemented by the UAE central bank recently was the
lifting of the floor capital adequacy ratio of 11% from mid-2009 (versus 10% previously). The
minimum CAR will rise to 12% by mid-2010. Given the central bank’s stipulation that tier 1
capital comprise at least two-thirds of total regulatory capital, this translates to an 8% tier 1
threshold by mid-2010. Barring significant asset quality deterioration (the sensitivity to which
was presented earlier), we believe all the banks will be able to meet these higher capital
adequacy thresholds.
However, there are a number of other potential regulatory changes on the horizon that could
have a profound effect on bank reporting and/or investor perceptions.
A. “Basel III”
The Bank for International Settlements (BIS) recently published consultation documents
setting out policy recommendations in response to the financial crisis. The intention of the
BIS is to implement the rule changes in 2012, although it should be noted that local
regulators will have final discretion in this area.
The documents highlight perceived weaknesses in the current regulatory framework and
propose a number of metrics that could be used to measure and control risks. In general, the
proposals appear to lean towards a more stringent definition of loss-bearing bank capital and
a heightened emphasis on liquidity risk. Other proposals include the incorporation of
countercyclical elements within the regulatory framework (such as enhanced dividend
distribution constraints when capital is scarce) and the introduction of a leverage ratio (which
may be less prone to ‘gaming’ by the banks).
In Figure 186, we present our first take on some of the key measures proposed in the BIS
consultations documents, both for the UAE banks and for other GCC banking systems. Key
implications for the UAE banks include a tighter definition of what counts as tier 1 capital
(recent hybrid issuance by the Abu Dhabi banks and Emirates NBD would probably not count,
in our view), while the bank’s funding ratios also appear to fall short of local and international
peers. Note that our calculations can be considered aggressive, in that it is likely that
instruments currently qualifying for regulatory purposes would be grandfathered into the new
regime. It is also likely that some kind of transition period would be in force prior to full
implementation of the new rules.

Figure 186: Comparison of UAE and GCC banks according to potential regulatory criteria
(Liquid assets + Available stable Potential Change in Leverage ratio (incl. Leverage ratio
potential near term funding/required tier 1 ratio derivatives exposures) (excluding derivatives
inflows) /Potential stable funding exposures)
fund outflows
NBAD 223% 63% -9% 26.8 16.3

ADCB 259% 55% -38% 20.2 19.7
FGB 163% 59% -12% 11.4 9.6
ENBD 249% 78% -32% 23.8 16.1
DIB 219% 87% -65% 28.4 23.8
UAE 223% 63% -33% 24.3 16.5

Saudi 235% 125% 5% 13.8 10.5
Qatar 111% 93% -20% 8.2 7.3
Kuwait 122% 60% 5% 13.3 12.2
Oman 191% 101% 7% 16.1 10.1
Further information concerning the ratios is presented in Figure 187.
Figure 187: Assumptions

Ratio Formula Constituents
Liquid assets/outflow (Liquid assets+inflow of funds)/outflow of Liquid assets includes Cash (full)+financial
of funds funds investment less than 30 days. Inflow of funds
includes average of loans and interbank assets
less than 30 days. Outflow of funds in the
denominator includes Stable deposits+
interbank liabilities+borrowings+off balance
sheet item (all less than 30 days)
Available stable Available stable funding/required stable funding Available stable funding is Total regulatory
funding/required stable capital+all other liabilities (excl. total regulatory
funding capital), but which is less than one year.
Required stable funding is Total assets minus
corporate loans+investments+cash+interbank
assets.
New tier 1 ratio New tier 1 capital /new RWA New tier 1 includes equity minus goodwill,
dividends, fair value of reserve, risk reserve,
minority interest, treasury stock, deferred taxes
and cash flow hedges. New RWA will include
125x risk weight of investment in associates.
Leverage ratio Assets/equity Assets include total assets, derivatives,
commitments and contingencies, treasury
shares and retained earnings minus the sum of
minority interest, goodwill and deferred tax.
Equity includes Total equity, mandatory
convertible bonds, minus minority interest,
associate investment and perpetual notes.
B. Unification of NPL definitions

Currently, the various UAE banks have different criteria for reporting non-performing loans,
although the central bank requirement is that loans be classified as substandard only 180
days after a missed payment. Press reports (Zawya) suggest the central bank will require all
the banks move to the international norm of 90 days past due definition. In addition, reports
indicate that rules regarding specific provisions will be introduced – namely that substandard
loans will require 25% provisions coverage, doubtful loans 50% coverage and 100%
coverage be required in the case of loss.
Within our coverage universe, our conversations with the banks suggest that only FGB is
following a 180-day non-performing loans recognition policy, while all the other banks have

already adopted a 90-day approach. Based on data presented by FGB, a shift to a 90-day
recognition policy could perhaps lead to a more than doubling of the NPLs/loans ratio
(currently 1.6% to 3.4%). However, since the bank’s provisioning levels are significantly
above the proposed new central bank minima (174% coverage ratio as at 2009), we believe
the implementation of any rule change need not necessarily have a significant effect on the
bank’s earnings. For example, FGB’s coverage ratio under the new rule would be 122%,
compared with our coverage universe median of 105%.
C. Introduction of general provisioning requirements

Another potential regulatory change, which would likely have a much more pronounced
impact on reported profits, is the potential introduction of a minimum level of general
provisioning, which press reports (Zawya) indicate would be at least 1.25% of loans. Figure
188 shows the current level of general provisioning for the banks and the potential level of
additional provisions that would be required to meet either a 1.25% of loans or credit risk-
weighted assets minimum level. For sensitivity purposes, we compare this extra level of
provisioning with our 2011E earnings estimates. Our analysis suggests ADCB’s earnings
could be more affected than its peers by such a regulatory change.
Figure 188: Potential additional provisioning requirements

Scenario 1 Scenario 2
General Target general Additional As % tangible As % 2011E Target general Additional As % tangible As % 2011E
provisioning/ provision level provisioning shareholders' earnings provision level provisioning shareholders' earnings
loans (on loans) requirement equity (on credit RWA) requirement equity
NBAD 1.19% 1.25% 81 0.5% 2% 1.25% 0 0% 0%
ADCB 1.25% 1.25% 5 0.0% 0% 1.25% 74 0% 6%
FGB 1.55% 1.25% (273) -1.5% -7% 1.25% -140 -0.8% -3%
ENBD 0.86% 1.25% 845 3.9% 23% 1.25% 405 1.9% 11%
DIB 0.70% 1.25% 624 7.0% 49% 1.25% 456 5.1% 36%
Average 1.19% 1.25% 1,283 1.6% 9% 1.25% 795 1.0% 6%
Source: Deutsche Bank; Company data 2009

Appendix E: Related party

transactions
Given the slowdown in the UAE economy and the sharp decline in real estate collateral
values, banks may come under pressure to provide support for affiliated entities. For
example, press reports (Zawya) earlier this year indicated that Union Properties, 48%-owned
by Emirates NBD, was able to restructure some USD1.5bn of its debts. More recent reports
(Reuters) suggest Emaar is also looking to restructure some of its debts.
Banks that lend to related parties may be less able to resist such overtures than those with
more arms length-relationships with their borrowers.
Figure 189: Loans given to related party

Management Major shareholders Associates
AED m as % of loans AED m as % of loans AED m as % of loans

NBAD 845 0.6% 184 0.1% 0 0.0%
ADCB 61 0.1% 0 0.0% 0 0.0%
FGB 13,179 14.6% 0 0.0% 701 0.8%
ENBD 1,714 0.8% 49,903 23.3% 3,782 1.8%
DIB 181 0.3% 3,813 7.4% 514 1.0%

Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
Abu Dhabi Comm Bank ADCB.AD 1.93 (AED) 8 Apr 10 8,17
Dubai Islamic Bank DISB.DU 2.35 (AED) 8 Apr 10 8
Emirates NBD ENBD.DU 2.92 (AED) 8 Apr 10 6,8
First Gulf Bank FGB.AD 18.50 (AED) 8 Apr 10 1,6,8
Nat Bank of Abu Dhabi NBAD.AD 11.70 (AED) 8 Apr 10 6,8
*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.
Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See
“Important Disclosures Required by Non-US Regulators” and Explanatory Notes.
1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this
company, for which it received fees.
6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company
calculated under computational methods required by US law.
8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services
from this company in the next three months.
Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the “Important Disclosures Required by US Regulators” and the Explanatory Notes.
1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this
company, for which it received fees.
6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company
calculated under computational methods required by US law.
17. Deutsche Bank and or/its affiliate(s) has a significant Non-Equity financial interest (this can include Bonds, Convertible
Bonds, Credit Derivatives and Traded Loans) where the aggregate net exposure to the following issuer(s), or issuer(s)
group, is more than 25m Euros.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this
research, please see the most recently published company report or visit our global disclosure look-up page on our
website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject
issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any
compensation for providing a specific recommendation or view in this report. Rahul Shah

Historical recommendations and target price: Abu Dhabi Comm Bank (ADCB.AD)
(as of 4/8/2010)
9.00 Previous Recommendations
8.00 Strong Buy

1 Buy
Market Perform
7.00 2 Underperform
Not Rated
6.00 Suspended Rating
S ecurity Price
Current Recommendations
5.00
Buy
Hold
4.00
Sell
Not Rated
4
3 *New Recommendation Structure
2.00
as of September 9, 2002
1.00
0.00
Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10
Da te
1. 19/7/2007: Downgrade to Hold, AED7.76 3. 19/1/2009: Downgrade to Hold, Target Price Change AED2.10
2. 6/8/2007: Upgrade to Buy, AED7.76 4. 8/6/2009: No Recommendation, Target Price Change NA
Historical recommendations and target price: Dubai Islamic Bank (DISB.DU)

(as of 4/8/2010)
Strong Buy
12.00 Buy
Market Perform
Underperform
10.00 Not Rated
Suspended Rating
S ecurity Price
8.00
Buy
Hold
6.00 Sell
Not Rated
Suspended Rating
4.00
*New Recommendation Structure
2.00
0.00
Da te

Historical recommendations and target price: Emirates NBD (ENBD.DU)

(as of 4/8/2010)
16.00 Strong Buy

Buy
Market Perform
14.00 Underperform
Not Rated
S ecurity Price
10.00
Buy
Hold
8.00
Sell
Not Rated

4.00
2.00
0.00
Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10
Da te
Historical recommendations and target price: First Gulf Bank (FGB.AD)

(as of 4/8/2010)
Strong Buy
30.00 Buy
Market Perform
Underperform
25.00 Not Rated
Suspended Rating
S ecurity Price
20.00
Buy
1 Hold
15.00 3 Sell
Not Rated
Suspended Rating
10.00 2
5.00
0.00
Da te
1. 26/7/2007: Upgrade to Buy, Target Price Change AED18.31 3. 8/6/2009: No Recommendation, Target Price Change NA
2. 19/1/2009: Downgrade to Hold, Target Price Change AED10.50

Historical recommendations and target price: Nat Bank of Abu Dhabi (NBAD.AD)
(as of 4/8/2010)
Strong Buy
25.00 Buy
Market Perform
Underperform
Not Rated
S ecurity Price
15.00 1 Buy
Hold
Sell
3 Not Rated
10.00 2 Suspended Rating

5.00
0.00
Da te
1. 21/10/2008: Buy, Target Price Change AED23.94 3. 8/6/2009: No Recommendation, Target Price Change NA
2. 19/1/2009: Buy, Target Price Change AED11.10
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-

holder return (TSR = percentage change in share price from 450
400
53 %
current price to projected target price plus pro-jected
dividend yield ) , we recommend that investors buy the 350
stock.
300 36 %
250
Sell: Based on a current 12-month view of total share-holder 200
150 11 %
return, we recommend that investors sell the stock 14 %
100
50 10 % 10 %
Hold: We take a neutral view on the stock 12-months out
and, based on this time horizon, do not recommend either a 0
Buy or Sell. Buy Hold Sell
Notes:
1. Newly issued research recommendations and target Companies Covered Cos. w/ Banking Relationship
prices always supersede previously published research.
Global Universe
2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of 10%
or more over a 12-month period
Hold: Expected total return (including dividends)
between -10% and 10% over a 12-month period
Sell: Expected total return (including dividends) of -10%
or worse over a 12-month period

Regulatory Disclosures
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Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent
or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at
http://gm.db.com.
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The Gate, West Wing, Level 3 17th & 28th Floor 21st Floor No:209 Kat:17-18
P.O. Box 504 902 Olaya, Riyadh 66883 Tel Aviv TR-34394 Istanbul
Dubai City Saudi Arabia Tel: (+972) 3 710-2000 Tel: (+90) 212 317 01 00
Tel: (971) 4 3611 700 Tel: (+966) 1 273 9700
International locations
Deutsche Bank Securities Inc. Deutsche Bank AG London Deutsche Bank AG Deutsche Bank AG
60 Wall Street 1 Great Winchester Street Große Gallusstraße 10-14 Deutsche Bank Place
New York, NY 10005 London EC2N 2EQ 60272 Frankfurt am Main Level 16
United States of America United Kingdom Germany Corner of Hunter & Phillip Streets
Tel: (1) 212 250 2500 Tel: (44) 20 7545 8000 Tel: (49) 69 910 00 Sydney, NSW 2000
Australia
Tel: (61) 2 8258 1234
Deutsche Bank AG Deutsche Securities Inc.
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Cheung Kong Center Sanno Park Tower
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Hong Kong Japan
Tel: (852) 2203 8888 Tel: (81) 3 5156 6701
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Middle East United Arab Emirates

UAE Banks: Initiation

product committee has deemed this work

Mind the Gap however.. We see good value in FGB and

Fundamental - detailed analysis of asset

Industry - sharp divergence in prospective

Thematic - optically cheap consensus

Thought-Leading - our valuation has

Rahul Shah Ryan Ayache

Deutsche Bank AG/London

Mind the Gap Abu Dhabi Comm Bank (ADCB.AD),AED2.00

F undamental - detailed analysis

T hematic - optically cheap consensus multiples reflect writedown risk

T hought-Leading - our valuation has been flexed for different scenarios.

Executive summary ........................................................................... 3

Page 2 Deutsche Bank AG/London

Overall, we see revenue growth averaging 1% pa in 2010E, 3% in 2011E and 4% in 2012E.

Deutsche Bank AG/London Page 3

Key investment themes

" Cr edibilit y ga p" FGB

We estimate gross writedowns equivalent to 4.6% of assets.

Real estate prices Stable to rising 5-10% decline 20-25% decline

Page 4 Deutsche Bank AG/London

Real estate and retail lending are key areas of risk

As s oc ia t e Cor por a t e RE % of wr it e downs

Source: Deutsche Bank Source: Deutsche Bank

Comparing asset risk and loss absorption capacity

Funding will remain an ongoing issue, in our view

Deutsche Bank AG/London Page 5

We see a significant split between winners and losers

The pain is yet to come – weak near-term profitability likely

Page 6 Deutsche Bank AG/London

NBAD 11.90 14.50 BUY 22% Reinstatement

% Ups ide/downs ide

Source: Deutsche Bank; As of April 8 closing price.

Deutsche Bank AG/London Page 7

Target price and recommendations

Figure 14: Target price and recommendations

NBAD 11.90 14.50 BUY 22%

Figure 15: Valuations multiples at current price

Page 8 Deutsche Bank AG/London

Figure 16: Valuation multiples at target price

Valuation multiples international comparison

Figure 17: Valuation of UAE banks vs global peers

Deutsche Bank AG/London Page 9

% Ups ide/downs ide

Source: Deutsche Bank; Current price as of April 9

Page 10 Deutsche Bank AG/London

Figure 21: PE multiples for three scenarios at current prices

2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

Figure 22: : PB multiples for three scenarios at current prices

CP 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E

EMEA NBAD ADCB FGB ENBD DIB

Share price performance

Deutsche Bank AG/London Page 11

E ME A La t in E m er ging Qatar KS A ADX Kuwa it DFM 10%

Comparison of Dubai and Abu Dhabi banks’ performance

Page 12 Deutsche Bank AG/London

International experience suggests significant performance differentials can persist