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Rating Action:

Moody's affirms ratings on two Kuwaiti banks and changes outlook to stable from negative

30 May 2017

Rating action follows affirmation of the Kuwait government issuer rating, with a stable outlook

Limassol, May 30, 2017 -- Moody's Investors Service (Moody's) has today affirmed National Bank of Kuwait S.A.K.P.'s (NBK) Aa3 and Kuwait Finance House K.S.C.P.'s (KFH) A1 long-term deposit ratings, and changed the outlook on these ratings to stable from negative.

Today's rating action follows Moody's decision to affirm and change the outlook on Kuwait's Aa2 government issuer rating to stable from negative, as announced on 26 May 2017. Please see "Moody's changes outlook on Government of Kuwait's Aa2 rating to stable from negative; affirms rating "; https://www.moodys.com/research/--PR_366560.

A full list of affected ratings is provided below.

RATINGS RATIONALE

Moody's affirmation and change in outlook to stable from negative on the banks' long-term deposit ratings is driven by the affirmation and change in outlook to stable from negative on the Kuwait government's Aa2 issuer rating. The banks' long-term deposit ratings benefit from uplift resulting from Moody's expectation of a very high likelihood of government support and are therefore sensitive to changes in the creditworthiness of the Kuwaiti sovereign.

NBK's Aa3 long-term deposit ratings and the (P)Aa3 senior unsecured rating of its funding subsidiary (NBK SPC Limited) benefit from three notches of government support uplift, from the bank's a3 standalone baseline credit assessment (BCA). KFH'S A1 long-term deposit ratings benefit from six notches of uplift from the bank's ba1 BCA.

Moody's support assumptions take into account the capacity and willingness of the government to provide extraordinary support to banks in case of need. The affirmation of the sovereign rating with a stable outlook indicates that this capacity is expected to remain unchanged. In addition, in terms of willingness to support, Moody's maintains a very high probability of support in case of need for the two banks, given the Kuwaiti authorities' track record in supporting all banks encountering difficulties and NBK's and KFH's high importance to the country's banking system, as the two largest Kuwaiti banks by assets and deposits. In addition, KFH is 49% owned by various Kuwaiti government entities.

WHAT COULD CHANGE THE RATINGS UP/DOWN

According to Moody's, upward rating pressure on the banks' ratings could develop following sustained improvement in operating conditions for banks in Kuwait.

NBK's ratings could also come under upwards pressure if the bank materially enhances its regional and global franchise and develops cross-border synergies, while controlling host country risks, and reducing balance sheet concentrations.

Additionally, positive pressure on KFH's ratings could develop as a result of improvements in its financial performance and a successful execution of its restructuring plan to address legacy issues and reduce complexity.

Downwards pressure on the banks' ratings could develop from a significant deterioration of domestic operating conditions, as captured in Moody's Macro Profile for the country. Asset quality deterioration, beyond the banks' historical through the cycle performance, arising either from the banks' regional exposures or from the weakening credit profile of large domestic customers, and/or a material deterioration in the banks' capitalisation, profitability and liquidity because of intrinsic factors would also exert negative rating pressure.

Lowering of Moody's government support assumptions would also place negative pressure on the banks' ratings. Supported ratings that are closer to the government level and benefit from a high degree of support, such as NBK's and KFH's deposit ratings, are particularly sensitive to changes in these assumptions.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS:

--- National Bank of Kuwait S.A.K.P.

- Long-term foreign currency and local currency deposit ratings: affirmed at Aa3; outlook changed to stable from negative

--- NBK SPC Limited

- Backed long-term foreign currency senior unsecured MTN rating: affirmed at (P)Aa3

Headquartered in Kuwait City, NBK reported total consolidated assets of KWD24.8 billion (around $81 billion) as of March 2017.

--- Kuwait Finance House K.S.C.P.

- Long-term foreign currency and local currency deposit ratings: affirmed at A1; outlook changed to stable from negative

Headquartered in Kuwait City, KFH reported total consolidated assets of KWD16.4 billion (around $54 billion) as of March 2017.

The Local Market analyst for Kuwait Finance House K.S.C.P. ratings 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Alexios Philippides
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 852 3758 1350
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 852 3758 1350
Client Service: 44 20 7772 5454

No Related Data.
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