Standard & Poor's Ratings Services announced today that it has taken the following rating actions on the four banks in Kuwait that it rates:
• S&P has affirmed 'A+/A-1' long- and short-term counterparty credit ratings on National Bank of Kuwait S.A.K. (NBK). At the same time, the outlook was revised to stable from negative.
• S&P has affirmed 'BBB+/A-2' long- and short-term counterparty credit ratings on Al Ahli Bank of Kuwait (ABK). At the same time, the outlook was revised to stable from negative.
• S&P affirmed 'BBB+/A-2' long- and short-term counterparty credit ratings on Burgan Bank. The outlook is still negative.
• S&P affirmed 'BBB-/A-3' long- and short-term counterparty credit ratings on Gulf Bank. The outlook is still negative.
The creditworthiness of the Kuwaiti banking sector has been affected by the global economic downturn, which led to drops in real estate, oil, and equity prices in the State of Kuwait (AA-/Stable/A-1+). These three markets account directly or indirectly for most of the country's corporate activities, and the price declines have eroded the financial standing of some borrowers--especially real estate dealers and local investment companies.
"Because of loan concentrations by single name, sector, and geography, which acted like a catalyst, asset quality has deteriorated significantly in the domestic banking system since 2008," said Standard & Poor's credit analyst Paul-Henri Pruvost. "Throughout 2009, the three markets continued to be weak and have ripple effects on borrowers. S&P believes that the economic recovery in Kuwait is still uncertain, especially for the real estate market and local investment companies. For that reason, S&P does not exclude that asset quality at Kuwaiti banks may decline further over the next quarters."
However, the effects of the crisis have been uneven so far for these four banks, and S&P believes that NBK and ABK have been and are likely to remain more resilient than the other two. Excluding any shift in their risk appetite, S&P considers that the following factors are helping to stabilize their ratings: sound coverage of nonperforming loans by loan loss reserves (both still exceeding 100%), good preprovision earnings capabilities, and stronger and higher-than-domestic-peer-capitalization under risk-adjusted capital (RAC) methodology. Conversely, and despite still adequate preprovision earnings capabilities, S&P believes that Burgan Bank's and Gulf Bank's asset quality has deteriorated to a much greater extent. Therefore, their provisioning needs are expected to be higher and take longer. S&P considers their capitalization to be markedly lower than ABK's and NBK's but adequate, with RAC ratios as of year-end 2009 slightly above the average for international peers. The negative outlook therefore reflects S&P concerns about asset quality and its potential further impact on their financial profiles.
"The funding position of the four banks remains shored up by deposits from Kuwaiti government-related entities," Mr Pruvost added. "This ongoing support has helped to curb an excessive decline in lending, although banks have become increasingly reluctant to further commit themselves given the uncertain operating conditions. S&P expects the authorities' funding support to remain in place."
Under S&P methodology, S&P classifies these four institutions as highly systemically important banks and consider that the Kuwaiti authorities are "interventionist" toward their banking sector. The long-term ratings on ABK, Burgan Bank, and NBK are therefore one notch higher than their stand-alone credit profiles, to reflect expectation of the likelihood of extraordinary support from authorities in case of need. In Gulf Bank's case, S&P increased the uplift to two notches from one in 2009, to factor in strong government support the bank received--funding support in late 2008 and capital support in early 2009.
Global Arab Network