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Rating Action:

Moody's affirms Al Ahli Bank of Kuwait's A2/P-1 ratings; outlook stable

Global Credit Research - 18 Apr 2013

Limassol, April 18, 2013 -- Moody's Investors Service has today affirmed Al Ahli Bank of Kuwait's A2/Prime-1 long- and short-term deposit ratings. At the same time, Moody's has affirmed the bank's D+ standalone bank financial strength rating (BFSR), equivalent to a baseline credit assessment (BCA) of baa3. The outlook on the ratings is stable.

Today's affirmation reflects Al Ahli Bank of Kuwait's (1) robust capitalisation and (2) stable pre-provision income levels and comfortable liquidity, counterbalanced by (3) Moody's expectation of moderate asset-quality pressures, combined with large credit concentrations to higher-risk sectors and significant single-party credit exposures.

RATINGS RATIONALE

Strong Capitalisation, Profitability and Liquidity

Moody's says Al Ahli Bank of Kuwait's robust capitalisation is the primary driver of the affirmation. As at year-end 2012, the bank's Tier 1 capital adequacy ratio stood at 26.0% (2011: 23.3%), which provides the bank with a substantial loss-absorption buffer that exceeds those of its local and global peers. Moody's expects that the bank will maintain strong capitalisation metrics over the next 12 to 18 months, in line with the rating agency's view that lacklustre conditions in the domestic corporate sector will limit lending growth.

Al Ahli Bank of Kuwait's loss-absorption capacity and internal capital generation is further enhanced by good core profitability. The bank's pre-provision income-to-risk-weighted assets ratio of 4.4% as at year-end 2012 was approximately double the median of similarly rated global peers, and has remained at this level over the past four years. Similar to other Kuwaiti banks, Al Ahli Bank of Kuwait's core profitability is supported by operating efficiencies resulting from a relatively small branch network (the Kuwaiti population is concentrated in the capital city) and a comparatively large asset base, which generate economies of scale. Additionally, the bank's liquidity profile remains comfortable, with liquid assets representing around 34% of total assets as of year-end 2012.

Asset Quality Pressures and Concentrations Pose Challenges

The affirmation of Al Ahli Bank of Kuwait's ratings also acknowledges that the aforementioned strengths are moderated by the rising volume of problem loans, which at year-end 2012 amounted to 5.5% of gross loans (2011: 4.3%) and related pressure on bottom-line earnings as provisioning charges increase. Net profits contracted by 40% in 2012, and Moody's expects that provisioning charges will remain elevated in 2013. Similar to other Kuwaiti banks, Al Ahli Bank of Kuwait is also subject to credit risk arising from single-party credit concentrations and material exposure to higher-risk industries such as real estate and construction, and investment companies.

WHAT WOULD MOVE THE RATINGS UP/DOWN

Although Moody's considers that there is limited potential for an upgrade of Al Ahli Bank of Kuwait's ratings in the near term, upwards pressure could be exerted on the ratings if the bank were to (1) reduce its balance-sheet concentrations; (2) strengthen its franchise; and (3) increase its bottom-line profitability, while maintaining strong asset-quality and capitalisation metrics.

Downward pressure could be exerted on Al Ahli Bank of Kuwait's ratings in the event of a material deterioration in the bank's asset quality, beyond current expectations, that negatively affects its performance and long-term income-generating capacity, and/or capitalisation metrics.

The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Al Ahli Bank of Kuwait is incorporated in Kuwait and reported consolidated total assets of KWD2.97 billion ($10.57 billion) as of 31 December 2012 (in accordance with audited IFSR).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Stathis A Kyriakides
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves J Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Kanika Business Centre
319 28th October Avenue
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Al Ahli Bank of Kuwait's A2/P-1 ratings; outlook stable
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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