FINANCIAL INSTITUTIONS

CREDIT OPINION5 July 2018

Update

RATINGS

National Bank of Fujairah PJSCDomicile Fujairah, United Arab

Emirates

Long Term Deposit Baa1

Type LT Bank Deposits - FgnCurr

Outlook Stable

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Contacts

Ashraf Madani +971.4.237.9542VP-Senior Analystashraf.madani@moodys.com

Savina R Joseph +357.2569.3045Associate Analystsavina.joseph@moodys.com

Akin Majekodunmi,CFA

+44.20.7772.8614

VP-Senior Analystakin.majekodunmi@moodys.com

Henry MacNevin +44.20.7772.1635Associate Managing Directorhenry.macnevin@moodys.com

Sean Marion +44.20.7772.1056MD-Financial Institutionssean.marion@moodys.com

Frederic Drevon +44.20.7772.5356MD-Global Bankingfrederic.drevon@moodys.com

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

National Bank of FujairahUpdate to credit analysis

SummaryNational Bank of Fujairah PJSC's (NBF) Baa1 long-term deposit rating reflects the bank'sba1 Baseline Credit Assessment (BCA) and incorporates a three-notch uplift, based on ourassessment of a very high likelihood of government support for the bank, if needed, given theGovernment of Fujairah's 40.15% ownership stake and the United Arab Emirates' (UAE; Aa2stable) authorities' track record of providing support to banks, in case of need.

NBF's ba1 BCA reflects the bank’s (1) solid profitability, with annualised net income of 1.4%of tangible assets as of the end of March 2018; (2) adequate capital buffers, with tangiblecommon equity (TCE)-to-risk-weighted assets (RWA) ratio of 11.6% as of the end of March2018; and (3) stable funding and liquidity. These strengths are moderated by the bank'sweakening asset quality and limited business diversification.

Exhibit 1

Rating Scorecard - Key financial ratios

5.8% 11.6% 1.3% 8.5% 28.3%

0%

5%

10%

15%

20%

25%

30%

0%

2%

4%

6%

8%

10%

12%

14%

Asset Risk:Problem Loans/

Gross Loans

Capital:Tangible Common

Equity/Risk-WeightedAssets

Profitability:Net Income/

Tangible Assets

Funding Structure:Market Funds/

Tangible BankingAssets

Liquid Resources:Liquid BankingAssets/TangibleBanking Assets

Solvency Factors (LHS) Liquidity Factors (RHS)

National Bank of Fujairah PJSC (BCA: ba1) Median ba1-rated banks

So

lve

ncy F

acto

rs

Liq

uid

ity F

acto

rs

The problem loan and profitability ratios are the weaker of the average three-year ratios and the latest reported ratios. Thecapital ratio is the latest reported figure. The funding structure and liquid resources ratios are the latest year-end figures. Owingto the unavailability of public information, we show the year-end 2017 metric for asset risk.Source: Moody's Investors Service

THIS REPORT WAS REPUBLISHED ON 05 JULY 2018 TO CAPTURE UPDATED INFORMATION.

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Credit strengths

» Established corporate and business banking franchise with a niche in trade finance, which supports solid earnings generation

» Adequate capital buffers, which reflect solid earnings generation and retention

» Stable corporate and business banking deposit base and limited maturity transformation, which drive its solid funding and liquidityprofiles

» Very high likelihood of receiving public support from the UAE authorities, in case of need

Credit challenges

» Exposure to the business banking segment, which will continue to drive a weakening in its asset quality, given the softer operatingenvironment in the country

» Limited business diversification

OutlookThe deposit rating we assign to NBF has a stable outlook, which reflects our expectation that the bank's solid profitability and capitalbuffers will help it weather the softer economic growth, despite its weakening asset quality and limited business diversification.

Factors that could lead to an upgradeNBF's ratings could be upgraded if there is (1) a material improvement in its business diversification, or (2) a significant reduction in itsborrower and depositor concentrations.

Factors that could lead to a downgradeNBF's ratings could be downgraded if there is a (1) significant, continued deterioration in its asset quality; (2) weakening in its capitalbuffers or profitability; or (3) material weakening in its funding and liquidity.

Key indicators

Exhibit 2

National Bank of Fujairah PJSC (Consolidated Financials) [1]3-182 12-173 12-163 12-153 12-143 CAGR/Avg.4

Total Assets (AED million) 36,605 36,656 35,668 30,033 24,586 13.05

Total Assets (USD million) 9,966 9,980 9,711 8,177 6,694 13.05

Tangible Common Equity (AED million) 3,716 3,895 3,589 3,287 2,835 8.75

Tangible Common Equity (USD million) 1,012 1,060 977 895 772 8.75

Problem Loans / Gross Loans (%) - 5.8 5.0 4.7 4.4 5.06

Tangible Common Equity / Risk Weighted Assets (%) 11.6 12.3 12.1 12.3 12.6 11.67

Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) - 28.6 24.9 22.6 20.3 24.16

Net Interest Margin (%) 2.5 2.4 2.4 2.7 2.9 2.56

PPI / Average RWA (%) 2.9 2.7 2.8 2.8 2.9 2.97

Net Income / Tangible Assets (%) 1.4 1.1 1.1 1.7 1.9 1.46

Cost / Income Ratio (%) 34.5 35.5 36.3 38.4 39.1 36.86

Market Funds / Tangible Banking Assets (%) 8.9 8.5 12.4 11.5 10.8 10.46

Liquid Banking Assets / Tangible Banking Assets (%) 24.0 28.3 28.5 28.0 27.2 27.26

Gross Loans / Due to Customers (%) 95.4 90.9 92.6 96.0 96.2 94.26

[1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [3] Basel II; IFRS [4] May include rounding differences dueto scale of reported amounts [5] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [6] Simple average of periods presented for the latestaccounting regime. [7] Simple average of Basel III periods presentedSource: Moody's Financial Metrics

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 5 July 2018 National Bank of Fujairah: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

ProfileNational Bank of Fujairah PJSC is a UAE-based commercial bank that was established in 1982 in the Emirate of Fujairah. NBFcommenced banking operations in 1984. The bank provides corporate banking, commercial banking, treasury and trade finance servicesto individuals, companies, financial institutions and government agencies. The bank also provides an expanding suite of personalbanking and Shari’a-compliant services. The bank operates primarily in the UAE (with 96% of its gross exposures located in the UAE asof year-end 2017) and has a market share of 1.4% in terms of total assets, 1.9% in terms of net loans and 1.7% in terms of deposits asof March 2018. As of the end of March 2018, the bank reported a consolidated asset base of AED36.6 billion ($10 billion).

As of the end of March 2018, NBF operated in the UAE through a network of 18 branches (of which one is an electronic banking serviceunit in Al Reef - Abu Dhabi). The bank's shares have been listed on the Abu Dhabi Securities Exchange (ticker: NBF) since 2005. As ofthe end of March 2018, the Department of Industry and Economy of the Government of Fujairah owned 40.15% of the bank’s totaloutstanding share capital.

For more information on the bank, please see Issuer Profile - National Bank of Fujairah.

For more information on the UAE banking system, please see Banking System Outlook - United Arab Emirates

Detailed credit considerationsExposure to the business banking segment will continue to drive a weakening in asset quality, given the softer operatingenvironment in the countryWe expect NBF’s asset quality to remain a weakness because the bank is mainly exposed to the small and medium-sized enterprise(SME) and mid-corporate segments. We expect asset quality pressures to persist for those customer segments in 2018 following thesoftening in the operating environment in the past few years. In addition, the bank’s borrower concentration continues to pose risks toits asset quality.

NBF's relatively rapid credit growth also moderates its asset quality. Such growth, 9% over the last 12 months ended March 2018,limits the seasoning of the book and poses challenges for the bank’s operational and underwriting controls. However, the short-term nature of the bank’s balance sheet gives it the ability to exit certain sectors/segments as and when they become troublesomeand reorient its balance sheet towards less risky sectors/segments. As of March 2018, corporate banking continued to be the largestbusiness segment with 60% of total assets (see Exhibit 3).

Exhibit 3

Asset breakdown by segment

58%

9%

6%

27%

60%

9%

7%

24%

Corporate banking Business banking Retail banking Treasury, ALM and others

Dec 2017

Mar 2018

Source: NBF's financial statements

As of March 2018, the bank's reported non performing loans (NPLs)-to-gross loans ratio remained stable at 5.5% (2017: 5.5%, 2016:5.0%), close to the UAE's December 2017 average of 5.4%. The bank's reported loan-loss reserves-to-NPLs ratio was 96.2%, including acredit risk reserve of AED114 million, as of the end of March 2018, although the ratio has increased from 90% as of year-end 2017. Theratio primarily increased on account of the implementation of IFRS 9 in 2018, which required a one-off adjustment to the bank's loan-loss reserves of AED187 million (see Exhibit 4).

3 5 July 2018 National Bank of Fujairah: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Exhibit 4

The bank's loan-loss reserves have been increasing in 2018 following the adoption of IFRS 9

5.6%5.4%

5.1% 5.0% 5.0%5.3%

0%

1%

2%

3%

4%

5%

6%

0

200

400

600

800

1,000

1,200

1,400

1,600

2013 2014 2015 2016 2017 Mar 2018

AE

D m

illio

n

Loan loss reserves IFRS 9 impact Credit risk reserve (Loan loss reserves + Credit risk reserve) % Gross Loans (RHS)

Sources: NBF's financial statements, Moody's Investors' Service

Adequate capital buffer reflects solid earnings generation and retentionWe expect the bank’s capital adequacy to remain broadly stable, above management's minimum target of a Tier 1 ratio of 14%-16%and a capital adequacy ratio of 16%-18%. The bank will meet future capital requirements set by the UAE Central Bank (see Exhibit 6),arising from its rapid asset growth, through continued high retained earnings (cash dividends for 2017, paid in 2017, were 21.7% of netincome while cash dividends for 2016, paid in 2017, were 20.7% of net income) and additional hybrid capital issuances.

Exhibit 5

National Bank of Fujairah PJSC's capital buffer meets Basel III requirements

11.2%

7.0%

14.6%15.7% 15.2% 15.1%

3.1%

1.5%

3.0%2.6%

2.5% 2.4%2.4%

2.0%

1.9%

0%

4%

8%

12%

16%

20%

2014 2015 2016 2017 Q1 2018* Requirements for 2018

Common Equity Tier 1 Tier 1 Adidtional Tier 1 Tier 2 Capital conservation buffer

*The bank reports under Basel III from 1 January 2018.Sources: NBF's financial statements, UAE Central Bank's Financial Stability Report

As of the end of March 2018, the bank's TCE/RWA stood at 11.6% (12.3% as of year-end 2017), which compares unfavourably withthe 14.7% local average, following the dividend payout and the one-off net impact of AED181 million because of the implementationof IFRS 9. The bank’s Basel III CET 1 ratio of 11.2%, Tier 1 ratio of 14.3%, total capital adequacy ratio of 16.7% were adequate for itsrisk profile. Furthermore, the bank is seeking regulatory approval of the conversion of AED500 million of Additional Tier 1 capital intoordinary shares, which will increase the CET 1 ratio by around 150 basis points.

Established corporate and business banking franchise with a niche in trade finance supports solid earnings generationWe expect the bank's healthy profitability to remain stable through 2018, and above that of its global peers. Solid credit growth,combined with a stabilisation in funding and operating costs, will help balance elevated provisioning charges as problem loansformation continues.

Higher interest income will contribute to profitability as the bank continues to grow faster than the system, as indicated by the 17.8%growth in the reported net interest income in the first three months of 2018, compared with the corresponding period in 2017. Thisrapid growth reflects the bank’s (1) industry focus and expertise; (2) flexibility, resulting from the short-term nature of its balance sheet.

4 5 July 2018 National Bank of Fujairah: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

In addition, we expect the bank’s niche franchise in trade finance to continue to contribute to top-line profitability through significantnon-interest income, which accounted for 34% of its reported operating income during the first three months of 2018 (36% in March2017).

Net interest margins declined to 2.4% during the first three months of 2018 (2.4% in 2017) from 2.7% in 2015 because the tighterfunding environment affected funding costs (2.0% in the first three months of 2018 from 1.9% in 2017 and 1.7% in 2016; see Exhibit6). The bank’s high reliance on term deposits (66% of deposits as of March 2018), which reflects its limited retail franchise, contributedto the increase in funding costs. The bank's cost-to-income ratio was stable at 34% during the first three months of 2018 (36% in2017), in line with the 36.2% local average. Loan-loss provisions consumed 45% of the bank's pre-provision income during the firstthree months of 2018, which was higher than the 28.6% local average, but below the 52% reported in 2017 (see Exhibit 7).

Exhibit 6

The bank's net interest margin showing signs of stabilisationExhibit 7

Loan-loss provisions increased in 2016-17, owing to the bank'sweakening asset quality, primarily that of its corporate loans

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2013 2014 2015 2016 2017 3M 2018(annualised)

Net interest margin Interest expense % Average total funding

Sources: National Bank of Fujairah PJSC's financial statements, Moody's Investors Service

0%

10%

20%

30%

40%

50%

60%

0

50

100

150

200

250

300

350

400

450

500

2013 2014 2015 2016 2017 3M 2018(annualised)

AE

D m

illio

n

Loan loss provisions

Loan loss provisions % Pre provision income (RHS)

Sources: National Bank of Fujairah PJSC's financial statements, Moody's Investors Service

Stable corporate and business banking deposit base, combined with limited maturity transformation, drive solid fundingand liquidity profilesWe expect NBF's market funding reliance and stock of liquid assets to remain stable, despite the tighter funding environment in theregion. The bank’s net loans-to-deposits ratio increased slightly to 91% as of the end of March 2018 (87% as of the end of March2017), as faster growth in loans (9%) outweighed the growth in deposits (5%).

However, the short-term nature of the bank’s balance sheet (73% of assets had a maturity of less than one year as of year-end 2017),combined with the longer-term maturity of its deposit base, limits the maturity transformation, which mitigates liquidity risk.

Exhibit 8

Total funding breakdown as of the end of March 2018

Capital10%

Subordinated debt1%

Other liabilities1%

Hybrid Securities3%

Borrowings6%

Interbank3%

Demand deposits25%

Saving deposits1%

Term deposits50%

Deposits76%

Sources: National Bank of Fujairah PJSC's financial statements, Moody's Investors Service

5 5 July 2018 National Bank of Fujairah: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

NBF exhibits a concentrated funding base that is skewed towards corporate deposits, which exposes it to volatility in a tighter liquidityenvironment. Nevertheless, a material portion of the bank’s deposits (20.0% of deposits as of the end of March 2018) are sourced fromrelated parties, which have historically been stable.

As of end March 2018, the bank’s market funds-to-tangible banking assets ratio stood at 9.0% (10.9% as of the end of March 2017),which is lower than the 17.6% local average. As of the end of March 2018, 6% of the bank's total market funding had a maturityof more than a year. As of the end of March 2018, the bank’s liquid banking assets-to-tangible banking assets ratio stood at 24.0%(28.3% as of year-end 2017), ranking below the 32.6% local average.

Limited business diversificationNBF's limited diversification constrains the bank's standalone profile because it increases its earnings sensitivity. Indeed, the bank'scorporate and business banking activities represented 77% of its operating profit during the first three months of 2018 (74% in 2017),which constrained its income profile.

Support and structural considerationsBoth government ownership and the UAE authorities’ track record support our view that NBF would receive support in caseof needNBF's Baa1 deposit rating incorporates a three-notch uplift from its ba1 BCA, based on our assessment of a very high likelihood ofgovernment support, in case of need. This assessment reflects (1) the Government of Fujairah's direct and indirect ownership stake(40.15% directly and 5.22% through the Fujairah Investment Company), combined with the Government of Dubai’s stake (9.78%through the Investment Corporation of Dubai); and (2) the UAE's strong track record of supporting banks in times of stress.

Counterparty Risk (CR) AssessmentCR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and are distinct from debt anddeposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial losssuffered in the event of default, and (2) apply to counterparty obligations and contractual commitments rather than debt or depositinstruments.

The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations(servicing), derivatives (for example, swaps), letters of credit, guarantees and liquidity facilities.

NBF's CRA is placed at A3(cr)/Prime-2(cr)The CR Assessment, prior to government support, is positioned one notch above the Adjusted BCA of baa2 and, therefore, abovedeposit ratings, reflecting our view that its probability of default of these obligations is lower than that of deposits. We believe seniorobligations represented by the CR Assessment will be more likely preserved to limit contagion, minimise losses and avoid disruption ofcritical functions.

The CR Assessment also benefir from three notches of systemic support, in line with out support assumptions on deposits. This reflectsour view that any support provided by the government authorities to a bank, which benefits senior unsecured debt or deposits, is verylikely to benefit operating activities and obligations reflect by the CR Assessment as well, consistent with our belief that governmentsare likely to maintain such operations as going-concern in order to reduce and preserve a bank's critical function.

Counterparty Risk Ratings (CRRs)Moody’s CRR are opinions of the ability of entities to honour the uncollateralised portion of non-debt counterparty financial liabilities(CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honoured. CRR liabilities typicallyrelate to transactions with unrelated parties. Examples of CRR liabilities include the uncollateralised portion of payables arising fromderivatives transactions and the uncollateralised portion of liabilities under sale and repurchase agreements. CRRs are not applicable tofunding commitments or other obligations associated with covered bonds, letters of credit, guarantees, servicer and trustee obligations,and other similar obligations that arise from a bank performing its essential operating functions.

6 5 July 2018 National Bank of Fujairah: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

NBF's CRR is placed at A3/Prime-2We consider the United Arab Emirates a jurisdiction with a non-operational resolution (non-ORR) regime. For non-ORR countries, thestarting point for the CRR is one notch above the bank's Adjusted BCA. However, the counterparty risk ratings for NBF benefit fromthree notches of government uplift, base on our assessment of a very high probability of government support.

Source of facts and figures cited in this reportUnless otherwise stated, the local system averages quoted in the report are updated as of the end of December 2017 and are basedon available audited system metrics. The global medians quoted in the report are updated using the most recent financial data. Unlessnoted otherwise, other data related to systemwide trends are sourced from the central bank. Bank-specific figures originate from thebank's reports and Moody's Banking Financial Metrics. For information on the Macro Profile for the UAE, please refer to latest UAEMacro Profile Update publication.

About Moody's Bank ScorecardOur scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read inconjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our scorecardmay materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strongdivergence). The scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down toreflect conditions specific to each rated entity.

7 5 July 2018 National Bank of Fujairah: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Rating methodology and scorecard factors

Exhibit 9

National Bank of Fujairah PJSCMacro FactorsWeighted Macro Profile Strong - 100%

Factor HistoricRatio

MacroAdjusted

Score

CreditTrend

Assigned Score Key driver #1 Key driver #2

SolvencyAsset RiskProblem Loans / Gross Loans -- -- -- b1 Loan growthCapitalTCE / RWA 11.6% baa3 ← → baa3 Expected trend

ProfitabilityNet Income / Tangible Assets 1.3% a3 ← → baa2 Loan loss

charge coverageCombined Solvency Score baa3 ba1LiquidityFunding StructureMarket Funds / Tangible Banking Assets 8.5% a3 ← → baa2 Deposit quality Expected trend

Liquid ResourcesLiquid Banking Assets / Tangible Banking Assets 28.3% baa2 ← → baa3 Expected trend

Combined Liquidity Score baa1 baa2Financial Profile baa3

Business Diversification -1Opacity and Complexity 0Corporate Behavior 0

Total Qualitative Adjustments -1Sovereign or Affiliate constraint: Aa2Scorecard Calculated BCA range baa3-ba2Assigned BCA ba1Affiliate Support notching 0Adjusted BCA ba1

Instrument class Loss GivenFailure notching

AdditionalNotching

Preliminary RatingAssessment

GovernmentSupport notching

Local CurrencyRating

ForeignCurrency

RatingCounterparty Risk Rating 1 0 baa3 3 A3 A3Counterparty Risk Assessment 1 0 baa3 (cr) 3 A3 (cr) --Deposits 0 0 ba1 3 Baa1 Baa1Source: Moody's Financial Metrics

Ratings

Exhibit 10Category Moody's RatingNATIONAL BANK OF FUJAIRAH PJSC

Outlook StableCounterparty Risk Rating A3/P-2Bank Deposits Baa1/P-2Baseline Credit Assessment ba1Adjusted Baseline Credit Assessment ba1Counterparty Risk Assessment A3(cr)/P-2(cr)

Source: Moody's Investors Service

8 5 July 2018 National Bank of Fujairah: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

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9 5 July 2018 National Bank of Fujairah: Update to credit analysis

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10 5 July 2018 National Bank of Fujairah: Update to credit analysis