Fitch Ratings has affirmed the National Bank of Kuwait’s (NBK) Long-term Issuer Default Rating (IDR) at ‘AA-‘ with a stable outlook and Viability Rating (VR) at ‘a’.
NBK’s IDRs, Support Rating and Support Rating Floor reflect the extremely high probability of support from the Kuwaiti authorities, if required, considering NBK’s leading domestic franchise in Kuwait and its international reputation, its historic importance within the Kuwait banking system, and the consistent support local banks have received from the Kuwaiti authorities during past systemic crises. NBK’s Long-term IDR has a Stable Outlook, reflecting the Kuwaiti sovereign’s ratings (‘AA’/Stable/’F1+’).
The bank’s VR reflects NBK’s dominant domestic franchise and international network, consistent profitability, strong capital base, sound asset quality, conservative risk profile and sound liquidity. It also reflects its presence in certain potentially riskier countries in the Middle East, notably Egypt. However, other such operations are relatively small.
NBK’s Long-term IDR is in line with the Support Rating Floor and is sensitive to any change in the Kuwaiti sovereign ratings or if Fitch changes its view of the sovereign’s propensity to support the bank. Upside potential for NBK’s VR is limited, considering its current high level. Any downside risk would result from a further marked deterioration in asset quality, which would materially erode the bank’s capital base, but Fitch considers this to be unlikely, considering the bank’s profitability and current level of impairment reserves.
At the same time, Fitch has affirmed the Long-term IDR of NBK’s wholly-owned subsidiary in the UK, National Bank of Kuwait (International) plc (NBKI), at ‘AA-‘, in line with NBK, reflecting NBKI’s close integration with its parent.
NBK maintained sound profitability ratios in 2011 and Q112 and net income in 2011 was broadly in line with the previous year. NBK enjoyed modest revenue growth, while containing its cost base, but impairment charges trebled. However, these only represented 15.2% of the bank’s pre-impairment profit. Net income is expected to remain sound in 2012, despite the continuing difficult conditions in certain Middle East countries.
Asset quality ratios remain sound, reflecting the bank’s conservative attitude to credit risk. NBK reported a slight improvement in loan quality ratios during 2011, with non-performing loans (NPLs) at 1.6% of the total and coverage at a strong 243% at end-2011. However, significant past due loans were classified as NPLs in Q112, resulting in a higher NPL ratio, which nevertheless compares favourably with its domestic peers. The increase mainly reflects a tougher approach towards certain Kuwaiti borrowers.
NBK has a strong and stable deposit base, and has benefited from a “flight to safety” during regional crises. The bank has no medium-term debt. Liquidity is sound, with cash, interbank placements and Kuwaiti government securities totalling around 21% of total assets at end-2011.
Capitalisation was strengthened in 2010, through a rights issue which raised KWD163.5m including share premium. The Fitch core capital ratio stood at a strong 24.7% at end-2011. The Tier I ratio stood at 18.3%, reflecting deductions for significant minority investments and proposed cash dividends.