Limassol, April 29, 2013 -- Moody's Investors Service has today changed to positive from stable
the outlook on Gulf Bank K.S.C.'s deposit ratings,
which have been affirmed at Baa2/Prime-2. At the same time,
Moody's has changed to positive the outlook on Gulf Bank's
standalone bank financial strength rating (BFSR), which has been
affirmed at D- and maps to a baseline credit assessment (BCA) of
ba3. The change in outlook reflects material improvements in Gulf
Bank's asset quality and capitalisation metrics.
RATINGS RATIONALE
-- LOAN BOOK REHABILITATION PROGRAMME IMPROVING ASSET QUALITY
Moody's says that the improvement in asset quality produced by Gulf
Bank's loan book rehabilitation programme is the primary driver
for changing the outlook to positive. Gulf Bank's non-performing
loans (NPLs)-to-gross loans ratio continue on a downward
trajectory, easing to 10.6% at year-end 2012
(2011: 14.6%), down from a 30.3%
peak in 2009. Although still at high levels, this improvement
in NPLs reflects management's targeted loan rehabilitation process,
combined with the bank's robust core profitability (the pre-provision
income-to-risk weighted assets ratio stood at 4.0%
at year-end 2012), which has allowed the bank to fully provide
for a portion of its problematic exposures and subsequently carry out
extensive write-offs. Over the previous three years,
such write-offs totaled an estimated KWD580 million (USD2.1
billion), which amounts to around half of Gulf Bank's NPLs
at their peak. Concurrently, loan loss provision coverage
(including general provisions) has increased to a moderate level of 56%
of NPLs at year-end 2012, compared to 38% in 2011.
Going forward, Moody's expects that the bank will continue
to generate sufficient earnings to absorb loan-loss provisioning
requirements, however, the rating agency also acknowledges
that this will continue to weigh on Gulf Bank's bottom-line
performance (credit charges consumed 63% of pre-provision
income in 2012).
-- LOSS ABSORPTION BUFFERS ARE GRADUALLY BEING REPLENISHED
In conjunction with asset quality improvements, Gulf Bank's
loss absorption buffers have also improved. As at year-end
2012, the bank's Tier 1 capital adequacy ratio stood at 14.1%
(2011: 13.6%), while risks to capitalisation
arising from unprovisioned NPLs have partially declined. At year-end
2012, NPLs as a proportion of shareholder's equity and loan
loss reserves amounted to 57%, compared to 82% at
year-end 2011. Moody's expects that capitalisation
metrics will remain broadly unchanged in the near term, in line
with the rating agency's view that internal capital generation will
be sufficient to fund the projected low single-digit loan book
growth.
WHAT WOULD MOVE THE RATINGS UP/DOWN
Gulf Bank's ratings could be upgraded if the bank is able to (1)
further reduce the volume of NPLs; and (2) improve loan loss provision
coverage, reducing unprovisioned NPLs to levels that no longer pose
a risk to capitalisation.
Gulf Bank's ratings could face downward pressure in the event of
resurgence in NPL formation (particularly amongst the bank's largest
debtors), a weakening in capital buffers or a decline in earnings-generating
capacity.
Gulf Bank K.S.C. is incorporated in Kuwait,
and reported consolidated total assets of KWD4.85 billion (USD17.2
billion) as of 31 December 2012 (in accordance with audited IFRS).
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.
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 changes the outlook on Gulf Bank's Baa2/Prime-2/D- ratings to positive from stable