(Reuters) – Citigroup downgraded three UAE banks, including First Gulf Bank FGB.AD, and said slower economic activity should lead to subdued balance sheet and profit growth among the banks.

Citigroup said it was concerned about asset quality deterioration for the UAE banks given their significant exposure to the construction and real estate sector.

“The sector is likely to see further stress, particularly the smaller/non-government backed developers and sub developers,” Citigroup added.

The brokerage also downgraded Abu Dhabi Commercial Bank to “sell” from “buy” and lowered its rating on National Bank of Abu Dhabi to “hold” from “buy.”

It downgraded First Gulf Bank to “hold” from “buy,” but said it prefers the stock as a sector play due to the significant headroom the bank has to withstand margin compression.

First Gulf Bank, which has an exclusive mandate from the Abu Dhabi government to administer the housing loans scheme for UAE nationals, can disburse up to 1.9 billion dirhams under the housing scheme and is not exposed to refinance risk, the brokerage noted.

Shares of First Gulf Bank were trading up 2 percent at 12.60 dirhams, while those of National Bank of Abu Dhabi were up 1 percent at 9.80 dirhams. Abu Dhabi Commercial Bank shares were largely flat at 2.05 dirhams.