Global Arab Network | Commercial Bank of Kuwait rating reflects weakening loan quality & difficult operating environment

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Commercial Bank of Kuwait rating reflects weakening loan quality & difficult operating environment

Global Arab Network - - George Haddad

Monday, 09 August 2010 14:57

Fitch: Commercial Bank of Kuwait rating reflects weakening loan quality & difficult operating environment

Kuwait - Fitch Ratings has downgraded Commercial Bank of Kuwait's (CB) Individual Rating to 'D' from 'C/D' and removed it from Rating Watch Negative. All the bank's other ratings have been affirmed at Long-term Issuer Default (IDR) 'A+' with Stable Outlook, Short-term IDR 'F1', Support '1' and Support Rating Floor 'A+'.

The downgrade of the Individual Rating reflects the bank's weakening loan quality and the impact of the more difficult operating environment on the bank's profitability. Slower profit generation will make it more difficult for CB to reserve adequately for its growing impaired loans. The Individual Rating also takes into account the bank's sound domestic franchise and adequate capitalisation.

CB's IDRs and Support Rating reflect the strong likelihood of government support if needed, and are not likely to change unless Fitch's view of the sovereign's ability to provide support changes.

CB continues to report deterioration in loan quality in the latest quarter; the deterioration is fairly gradual but shows no sign of slowing. At end-H110 impaired loans rose to KWD534m, about a fifth of the loan book, up from KWD462m in 2009. It is likely that some additional loan portfolio deterioration will occur before recovery, although Fitch does not expect a sudden, material worsening of loan quality.

Pre-impairment operating profit was down about 37% yoy at end-H110. Both net interest and fee income decreased on lower business volumes and tightening margins in a lower interest rate environment. As in 2009, impairment charges absorbed almost all the bank's H110 pre-impairment operating profit, and Fitch expects loan quality problems to continue to pressure earnings into 2011.

CB is the fifth-largest Kuwaiti bank by assets, accounting for about 9% of the system total. The bank provides a range of corporate and retail banking products to the domestic market and has the second?largest branch network in Kuwait. Corporate banking is CB's core business, accounting for most of the bank's loans and funding. CB's shares are listed on the Kuwaiti stock exchange.

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