Fitch affirms NBK rating at ‘AA-’ with a stable outlook

KUWAIT: Fitch Ratings affirmed NBK’s Long-Term Issuer Default Rating (IDR) at AA- with a Stable Outlook. Fitch has also downgraded NBK’s Viability Rating (VR) to “a-” from “a” as a re-assessment of the Bank against regional peers with similar ratings when looking at financial metrics, both ratios and absolute values. Fitch said that NBK’s Support Rating Floor at AA -, a notch above Fitch’s actual country Domestic Systemic ally Important Bank (D-SIB) SRF of A +; is reflected in the Bank’s unique status

And systemic importance as the flagship bank in Kuwait, and its close business and strategic links with the state. Fitch also mentioned that the future stable outlook given to NBK is supported by the future outlook of the state (AA/Stable) and its ability to provide support to its banks.

“NBK continues to benefit from a fairly stable operating environment in Kuwait despite the economic impact of low oil prices” said Fitch. “Our assessment of the operating environment considers NBK’s exposure to developed markets such as Western Europe and North America, but also to more challenging ones regionally such as Egypt and Bahrain”.

Fitch added that NBK is the flagship bank in Kuwait with leading market shares in the domestic market and clear competitive advantages as the Bank’s size, largest branch network, distribution capabilities, strong client relationships, expertise, brand, reputation and longestablished geographical footprint. Moreover, “NBK is the only Kuwaiti bank to be able to provide both conventional and Islamic banking (through its 58.3 percent owned Sharia-compliant bank, Boubyan Bank)”. Fitch emphasized also that “NBK has strong and well-experienced management team that supports the Bank’s good execution. The Bank’s strategic objectives have been consistent over the past years and well-articulated to achieve organic growth and group integration”.

In addition to the above mention benefits that NBK enjoys, Fitch highlighted on the benefits that the Bank attains given its diversified business model, wider opportunities and size, to reduce concentrations compared to domestic peers.

Speaking of asset quality, Fitch mentioned that “NBK has a record of low impaired and problem loans (about 1.2 percent of gross loans at end-1H17). The Bank’s leading franchise and diversified business model enables NBK to underwrite high quality borrowers”. On the other hand, “NBK’s profitability is stronger than peers in terms of generation capabilities, diversification and stability”.

NBK’s Fitch Core Capital (FCC) has improved and was in line with peers at end-1H17 due to a KD 137.6 million rights issue in 2016 and continuous internal capital generation. Successful issuances of tier 1 ($700 million) and tier 2 (KD 125 million) instruments in 2015 have supported Fitch’s view on the Bank’s high ability to raise capital and boost regulatory ratios to adhere to its additional D-SIB capital requirements. Moreover, the recent 5-year senior unsecured debt issuance of $700 million has supported NBK’s funding. The bank’s liquidity is well-managed and liquidity risk remains contained.