Fitch Affirms National Bank Of Kuwait & UK Subsidiary At ‘AA-‘

Fitch Ratings has affirmed National Bank of Kuwait’s (NBK) Long-Term Issuer Default Rating (IDR) at ‘AA-‘ with a Stable Outlook and its Viability Rating (VR) at ‘a’. Fitch has also affirmed National Bank of Kuwait (International) PLC’s (NBKI) Long-Term IDR at ‘AA-‘ with a Stable Outlook. A full list of rating actions is provided at the end of this rating action commentary.


NBK’s IDRs, Support Rating, and Support Rating Floor (SRF) reflect Fitch’s view that there is an extremely high probability of support being provided to the bank by the Kuwaiti authorities, if needed. Fitch’s assessment of support is based on Kuwait’s financial strength as indicated by its rating (AA/Stable). This is in addition to the Kuwaiti authorities’ extremely strong propensity, in Fitch’s view, to support the Kuwaiti banking system, as has been demonstrated through the long-standing track record of support over the years.

Fitch makes a distinction between NBK’s SRF and that of the other banks in Kuwait, as a result of its status as the flagship bank in the sector, its historical role in the Kuwaiti banking sector and close business links with the state.

The Stable Outlook on the bank’s IDRs reflects the Outlook on the Kuwaiti sovereign rating.


The IDRs, SR and SRF of NBK are potentially sensitive to a change in Fitch’s assumptions around the Kuwaiti authorities’ propensity to provide timely support to the bank, or any downward pressure on the sovereign rating. The ratings are also sensitive to a change in Fitch’s perception of the NBK’s flagship status.


NBK’s VR reflects its solid balance sheet, with strong asset quality ratios and a sound capital base, and consistent profitability. All these are underpinned by the bank’s dominant domestic franchise. The VR also considers the extent of the bank’s direct or indirect exposure to the Kuwait stock market, in line with other banks in the Kuwaiti market. The rating further takes into account the operating environment that is characterised by slow growth and a lack of opportunities for banks to extend credit.

NBK’s profitability remained strong during 9M13, maintaining its leading market share in its principal business lines. Growth in operating profit was strong. Fitch expects profits to be at a similar level in 2014.

Asset quality improved slightly during 9M13. Loan growth was modest and impaired loans ratios are stronger than the majority of peers, as is coverage of impaired loans, which is substantial at 184% of impaired loans. Concentrations are still present in the loan book, but relative to peers are modest.

Although deposit concentration is still high, a number of the depositors are government and quasi-government organisations. Traditionally the bank has had a stable deposit base and is seen in the region as a safe haven for funds in times of volatility.

The bank’s Fitch Core Capital ratio has been falling but remained sound at end-9M13, at 17.6%.


NBK’s VR is unlikely to be upgraded due to its current high level. Downside risks stem from deterioration in the bank’s asset quality leading to an erosion of the bank’s capital base. As with other banks in the Kuwaiti market, the extent of bank’s direct or indirect exposure to the Kuwait stock market is a source of risk and the bank’s VR could be sensitive to downward pressure if the risk of the larger share financing loans or lending collateralised by shares were to increase as a result of falls in collateral values. In addition, the bank has international operations in higher-risk markets, in particular Egypt, which could affect asset quality. However, the size of these operations is fairly small.

NBK’s VR is also sensitive to a further reduction of the bank’s capital base.


NBKI’s IDRs and Support Rating reflect an extremely high probability of support from NBK, given its status as a wholly owned subsidiary and strategic importance to the group.


NBKI’s IDRs are sensitive to a change in NBK’s ratings. They are also sensitive to a change in Fitch’s view of the importance of the subsidiary within the NBK group. NBKI’s Support Rating in sensitive to a downgrade of multiple notches of the Kuwaiti sovereign rating.

NBK is the largest bank in Kuwait by assets and has leading shares in most market sectors. The business is split into the main business areas of corporate banking, retail and private banking, investment banking, and international banking. With the consolidation of Boubyan Bank, NBK is now the only bank in Kuwait servicing both the conventional and Islamic banking markets.

Source: Press Release