Rating action follows confirmation of the Kuwait government rating
Limassol, May 16, 2016 -- Moody's Investors Service (Moody's) has today confirmed the long-term
deposit ratings of National Bank of Kuwait S.A.K.P.
(NBK) at Aa3 and Kuwait Finance House K.S.C.P.
(KFH) at A1. In addition, Moody's has assigned negative
outlooks to the banks' deposit ratings. At the same time,
Moody's has confirmed both banks' Counterparty Risk Assessments
(CR Assessment) at Aa2(cr) and A1(cr) respectively. Today's
action concludes the review on the banks' ratings that was initiated
on 7 March 2016.
Moody's confirmation of the banks' ratings is underpinned
by the continued capacity of the government to provide support in the
event of need, as indicated by the confirmation of Kuwait's
Aa2 rating on 14 May 2016 with a negative outlook. The sovereign
action reflects Moody's view that despite the negative effect of
a protracted period of low oil prices on the economy, government
finances and external strength, the sovereign's overall credit profile
remains consistent with a Aa2 rating (please see "Moody's confirms
Kuwait's Aa2 government issuer rating and assigns negative outlook,
concluding review for downgrade"; https://www.moodys.com/research/--PR_348325).
The negative outlook on the banks mirrors the negative outlook on the
sovereign rating and captures Kuwait's fiscal pressures, which
may weaken its capacity to provide support in the future. The negative
outlook on the sovereign rating reflects Moody's view that there remain
material uncertainties around the Kuwaiti government's ability to effectively
implement its fiscal and economic reform program, which has the
stated objective of diversifying and enhancing the economic base and its
budgetary revenues.
The banks' standalone baseline credit assessments (BCA) were not under
review and, therefore, remain unchanged.
A full list of affected ratings is provided further below.
RATING RATIONALE
--- RATINGS CONFIRMATION
The confirmation of NBK's and KFH's long-term deposit
ratings follows Moody's confirmation of the Kuwaiti government's
ratings at Aa2 on 14 May 2016 and reflects the rating agency's assessment
that the capacity of the government to support the banks' in the
event of need has not diminished.
The banks' deposit ratings benefit from Moody's support assumptions,
which take into account the willingness and capacity of a government to
provide extraordinary support to banks in case of need. The confirmation
of the sovereign rating indicates that this capacity currently remains
unchanged. In addition, in terms of willingness, Moody's
maintains a very high probability of support in case of need for the 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. As such, NBK's Aa3 deposit rating continues
to benefit from three notches of government support uplift from its a3
BCA, while KFH's A1 deposit rating benefits from six notches
of support uplift from its ba1 BCA.
--- RATINGS NEGATIVE OUTLOOK
The negative outlook on the banks' long-term term deposit
ratings signals that the capacity of the government to provide support
may weaken over time, as indicated by the negative outlook on Kuwait's
rating. Hence, the outlook on the two banks mirrors the outlook
on the sovereign rating, which captures the ongoing fiscal pressures
arising from the Kuwaiti government's high reliance on oil revenues
and current low oil prices.
WHAT COULD CHANGE THE RATINGS -- UP
Upwards pressure on the banks' deposit ratings is currently limited
given the negative outlook on the ratings. However, the outlook
on the ratings may change to stable should the government's issuer
rating outlook also stabilise.
WHAT COULD CHANGE THE RATINGS -- DOWN
Downwards pressure on the banks' ratings could develop from a lowering
of Moody's government support assumptions, either through
a weakening in the government's support capacity, as a downgrade
of the sovereign rating would imply, or any sign that the government's
willingness to provide support to the banks is diminishing. 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 more sensitive to changes in these assumptions.
Negative pressure would also be exerted on the banks' ratings from
a significant deterioration of domestic operating conditions in Kuwait,
as captured in Moody's Macro Profile for the country, which would
lead to a weakening of the banks' standalone profiles. Asset
quality pressures arising either from the banks' regional exposures
or from the weakening credit profile of large domestic customers and/or
a material deterioration in the bank's capitalisation, profitability
and liquidity because of bank intrinsic factors would also put negative
pressure on their ratings.
LIST OF AFFECTED RATINGS:
--- National Bank of Kuwait S.A.K.P.
- Long-term foreign currency and local currency deposit
ratings: confirmed at Aa3; outlook on the long-term
ratings is negative
- Counterparty Risk Assessment: confirmed at Aa2(cr)
Headquartered in Kuwait City, NBK reported total consolidated assets
of KWD24.7 billion (around $82 billion) as of March 2016.
--- Kuwait Finance House K.S.C.P.
- Long-term foreign currency and local currency deposit
ratings: confirmed at A1; outlook on the long-term ratings
is negative
- Counterparty Risk Assessment: confirmed at A1(cr)
Headquartered in Kuwait City, KFH reported total consolidated assets
of KWD16.8 billion (around $56 billion) as of March 2016.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
The local market analyst for Kuwait Finance House K.S.C.P.
ratings is Nitish Bhojnagarwala, AVP-Analyst, Financial
Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS:
44 20 7772 5454.
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: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Sean Marion
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's confirms ratings of two Kuwaiti banks and assigns negative outlooks; concludes review
