Global Arab Network | Fitch Affirms KFH's IDRs; Downgrades Individual Rating

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Fitch Affirms KFH's IDRs; Downgrades Individual Rating

Global Arab Network - - Maha Karim

Wednesday, 01 April 2009 17:02

Fitch Ratings has today affirmed Kuwait Finance House's (KFH) Long-term Issuer Default Rating (IDR) at 'A+' and Short-term IDR at 'F1'. The Individual Rating was downgraded to 'C/D' from 'C' and placed on Rating Watch Negative (RWN). KFH's Support '1' and Support Rating Floor 'A+' were affirmed. The Outlook for the Long-term IDR is Stable.

The downgrade in KFH's Individual Rating reflects Fitch's concerns that the bank is highly exposed to Kuwait's distressed investment companies, which contributed in part to the bank's significantly higher loan impairment provisions and impaired loans for FY08.

"While the Kuwaiti sovereign support package to stabilise financial markets, approved last week, is a positive development, it is too early to judge its impact on KFH's credit fundamentals," " says Mahin Dissanayake, Associate Director in Fitch's Financial Institutions team. KFH anticipates being able to reverse some of the provisions and impairments taken in 2008 for its investment company exposure during 2009, if the sovereign's rescue plan is successful.

The RWN on KFH's Individual Rating reflects the continuing uncertainty surrounding Kuwaiti investment companies, as well as KFH's large exposure to real estate, local equities and other investments, which are experiencing sharply lower valuations in the current downturn. Fitch will resolve the RWN once the agency has reviewed KFH's H109 figures and the agency has assessed the bank's future provisioning requirements, asset quality and the impact on profitability and capitalisation.

KFH's IDRs and Support Rating reflect Fitch's view that there is an extremely high probability that the bank would receive support from the Kuwaiti authorities, if required. This view is based on the State's strong history of supporting local banks, KFH's government-related shareholders and its systemic importance. Downside risk to the IDRs is limited as the Long-term IDR is at the Support Rating Floor.

Established in 1977 as Kuwait's first Islamic bank, KFH offers a wide range of Shari'ah-compliant financial products and services. KFH is the second largest bank in Kuwait. The bank is listed on the Kuwait Stock Exchange and the Kuwaiti government holds an indirect stake of around 43%.

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