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Rating Action:

Moody's upgrades Ahli United Bank K.S.C to A2; outlook stable

Global Credit Research - 10 Apr 2013

Standalone BFSR and short-term ratings affirmed

Limassol, April 10, 2013 -- Moody's Investors Service has today upgraded by one notch the long-term deposit ratings of Kuwait-based Ahli United Bank K.S.C (AUBK) to A2 from A3 and affirmed AUBK's standalone bank financial strength rating (BFSR) and short-term deposit ratings of D+ and Prime-1, respectively. The D+ BFSR is equivalent to a baseline credit assessment (BCA) of baa3. The outlook is stable on all the ratings.

Today's upgrade reflects the stabilisation of AUBK's Islamic franchise within the Kuwaiti market, which has prompted Moody's to adjust the levels of systemic (government) support uplift it incorporates into AUBK's long-term ratings (from the bank's baa3 BCA). The affirmation of the standalone ratings reflects the bank's strong and stable asset quality, capital and liquidity metrics, counterbalanced by continued high concentration levels.

RATINGS RATIONALE

-- STABLISATION OF FRANCHISE DRIVES HIGHER SUPPORT ASSUMPTION

Today's upgrade reflects the stabilisation of AUBK's franchise within the Kuwaiti market including its successful conversion from a conventional to an Islamic bank, which has prompted Moody's to adjust the levels of systemic (government) support uplift it incorporates into AUBK's long-term ratings (from the bank's baa3 BCA). This action aligns support assumptions incorporated in AUBK's ratings with its Kuwaiti peers.

AUBK's deposit ratings now benefit from four notches of uplift from its BCA (from three previously) due to the high likelihood of support from the Kuwaiti government, in case of need. This uplift is a consequence of (1) AUBK's market position in the Kuwaiti banking system, with a market share of around 6%; (2) AUBK's direct and indirect Kuwaiti government ownership; and (3) the Kuwaiti government's long track record of supporting financial institutions.

-- AFFIRMATION OF STANDALONE RATINGS REFLECTS RESILIENCE TO MARKET PRESSURES

The primary driver of Moody's decision to affirm the standalone ratings of AUBK with a stable outlook is the bank's strong and stable asset quality. After peaking at 4.9% in 2009, AUBK's non-performing financings (NPFs) ratio stabilised at around 3% (at year-end 2012, the NPF ratio stands at 2.7%). These asset-quality metrics compare favourably with both global and Kuwaiti peers (Kuwaiti average NPFs are around 5.3% as of year-end 2012). In addition, the bank's coverage ratio has also improved and stands at 161% as of year-end 2012. Going forward, we expect that the bank's asset quality will be sustained by prudent underwriting as exhibited by relatively low financing exposures to commercial offices and Kuwaiti investment companies - the two sectors that are the main source of problem loans for its Kuwaiti peers.

The second driver of the affirmation is the bank's maintenance of solid capital and liquidity metrics. Despite renewed asset growth over 2012, AUBK's Tier 1 capital ratio of 16.4% remains high when compared with the average Tier 1 capital ratios of local and global peers. Additionally, the bank's liquidity position remains comfortable, with liquid assets representing around 30% of total assets as of year-end 2012.

The affirmation also acknowledges that these strengths are moderated by very high concentration levels on both sides of the bank's balance sheet. Although credit and deposit concentrations are a common feature among GCC banks, the levels exhibited by AUBK have tended to be above those observed at other Kuwaiti peers.

WHAT WOULD MOVE THE RATINGS DOWN/UP

Although the outlook is stable, an upward pressure on AUBK's BCA could develop if the bank (1) materially increases its franchise; (2) significantly reduces concentration on both sides of the balance sheet; and/or (3) improves its overall funding profile.

Downward pressure on AUBK's BCA could develop if (1) borrower and sector concentrations increase further; (2) the bank's asset quality deteriorates; and/or (3) capitalisation levels weaken.

AUBK is incorporated in Kuwait and reported consolidated total assets of KD2.6 billion (US$9.1 billion equivalent) as of 31 December 2012.

The principal methodology used in these ratings 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.

The local market analyst for AUBK's rating is Nitish Bhojnagarwala +971.4.237.9563.

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 upgrades Ahli United Bank K.S.C to A2; outlook stable
No Related Data.

 

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