Investment bank Jefferies has turned more bullish on First Abu Dhabi Bank (FAB), the largest lender in the United Arab Emirates. The firm raised its price target to 25 dirhams per share and lifted its earnings-per-share forecasts for 2026 through 2028, pointing to two key factors: a relatively low loan-to-deposit ratio and talk of a $5 billion rights issue that could strengthen the bank's capital base.
Why the low loan-to-deposit ratio matters
A bank's loan-to-deposit ratio (LDR) measures how much of its customer deposits are tied up in loans. FAB's LDR stands at 77%, meaning for every 100 dirhams of deposits, it has lent out 77 dirhams. That leaves a comfortable cushion compared with many peers, which often run closer to 90% or higher.
For investors, a lower LDR signals that the bank has room to grow its loan book without having to chase new deposits aggressively. In a competitive market where attracting deposits can be costly, that flexibility is valuable. It means FAB can expand lending while keeping its funding costs relatively stable, which supports net interest income—the difference between what a bank earns on loans and pays on deposits.
The potential $5 billion rights issue
Jefferies also highlighted reports that FAB may launch a $5 billion rights issue—a way for a company to raise capital by offering new shares to existing shareholders. While rights issues often get a negative reception because they dilute existing shareholders' stakes, Jefferies sees this one as potentially earnings-supportive.
The extra capital could lift FAB's core capital ratio to 15.4% on a pro forma basis for 2026, compared with 13.2% in its base case. A higher capital ratio gives a bank more room to absorb losses and, crucially, to support more lending within regulatory limits. In other words, the rights issue could help FAB turn its balance-sheet capacity into actual loan growth, which would feed into higher profits over time.
Jefferies nudged its 2026-2028 earnings-per-share forecasts to 1.93, 2.09, and 2.30 dirhams, respectively, even while acknowledging the potential dilution from issuing new shares.
What it means for investors
For everyday investors, this analyst action is a signal that FAB may be better positioned than its peers to grow without hitting funding or capital constraints. Banks are often judged on two things: how cheaply they can gather deposits and how much capital they hold to back their loans. FAB appears relatively strong on both fronts.
If the bank can add loans while keeping funding costs in check, more of its revenue can come from net interest income. That's why a rights issue, which might normally be seen as a negative headline, can look earnings-supportive here: the extra capital could make it easier for FAB to expand its loan book and boost profits.
Of course, analyst price targets are not guarantees. They reflect one firm's view based on current information, and actual results can differ. Investors should also consider that a rights issue would dilute existing shareholders, meaning each share would represent a smaller slice of the company. The net effect on the share price will depend on whether the capital raise leads to enough additional earnings to offset that dilution.
For those tracking the broader banking sector, FAB's situation is a reminder that capital strength and funding flexibility are key drivers of bank profitability. As banks in other regions compete for deposits, FAB's relatively low LDR could give it an edge in a market where deposit competition is heating up.
Jefferies' move also comes amid a backdrop of major investors holding large cash piles, suggesting that opportunities in well-capitalized financials may be attracting attention. While no one can predict the exact path of FAB's share price, the analyst's reasoning highlights the fundamental strengths that could support the bank's performance in the coming years.
