Limassol, September 24, 2020 -- Moody's Investors Service, ("Moody's") has
today downgraded National Bank of Kuwait S.A.K.P.
(NBK) and Kuwait Finance House K.S.C.P.'s
(KFH), the long term local and foreign currency deposit ratings
to A1 and A2 from Aa3 and A1 respectively. At the same time,
the long-term Counterparty Risk Ratings (CRR) and Counterparty
Risk Assessment (CRA) of NBK were downgraded to A1 and A1(cr) from Aa2
and Aa2(cr) respectively. KFH's CRR and CRA were confirmed
at the A1 and A1(cr) respectively. The standalone baseline credit
assessments (BCAs) and other ratings of these banks are unaffected by
this rating action. Today's action concludes the review on the
banks' ratings that was initiated on 01 April 2020.
The rating action follows Moody's downgrade of Kuwait's government issuer
rating to A1 with a stable outlook. The decision to downgrade the
government's rating reflects both the increase in government liquidity
risks and a weaker assessment of Kuwait's institutions and governance
strength. Please refer to the following press release for more
details: https://www.moodys.com/research/Moodys-downgrades-Kuwaits-issuer-rating-to-A1-changes-outlook-to--PR_430830.
Despite the sovereign rating downgrade, Moody's has maintained
the Macro Profile it assigns to Kuwait at Strong -. This
reflects the rating agency's view that the Kuwaiti banking system's
financial performance will remain robust and that the standalone profiles
of these banks are underpinned by their strong solvency and liquidity
profile.
The rating agency has changed the outlook on the long-term deposit
ratings of the two Kuwaiti banks to stable from ratings under review in
line with the stable outlook on the sovereign rating.
A list of all affected ratings and assessments is provided at the end
of this press release.
RATINGS RATIONALE
-- DOWNGRADE OF DEPOSIT RATINGS REFLECTS LOWER RATING OF
THE SUPPORT PROVIDER
The primary driver for today's rating action is the downgrade of the Kuwaiti
government's - the support provider to the banking system
in case of need -- issuer ratings to A1 from Aa2. Nonetheless,
Moody's assessment of the Kuwaiti government's willingness to provide
support remains unchanged at 'very high' reflecting (a) Kuwait's
very high stock of sovereign assets held in the Future Generations Fund
(FGF) estimated at 359% of GDP as of the end of fiscal year 2019-20,
(b) the Kuwaiti authorities' long track record of supporting all the country's
banks and (c) NBK's and KFH's importance to the country's banking system,
as the two largest Kuwaiti banks by assets and deposits.
The long-term deposit ratings of NBK have been downgraded to A1
from Aa3. The A1 deposit ratings are based on the bank's standalone
BCA of a3 which remains unaffected and Moody's assumption of a very
high likelihood of government support, which now translates into
two notches of uplift from three notches previously.
The long-term deposit ratings of KFH have been downgraded to A2
from A1. The A2 long-term deposit ratings of KFH are based
on the bank's BCA of baa3 which remains unaffected and Moody's assumption
of a very high likelihood of government support, which translates
into four notches of uplift from five notches previously. The four
notches of government support uplift is now consistent with other Kuwaiti
banks.
-- UNCHANGED MACRO PROFILE REFLECTS MOODY'S UNCHANGED
VIEW ON THE OPERATING ENVIRONMENT FOR BANKS IN KUWAIT
Moody's has maintained the Strong - Macro Profile assigned to Kuwaiti
banks. This reflects the rating agency's view that the Kuwaiti
banking system's financial performance will remain robust and that
the standalone profiles of these banks are underpinned by their strong
solvency and liquidity profile. While the sovereign rating action
captures (a) increase in government liquidity risks, (b) deadlock
over the government's medium-term funding strategy and (c)
the absence of any meaningful fiscal consolidation, the macro-economic
conditions for banks remains strong underpinned by continued government
spending which weakens the government's fiscal position but at the
same time supports the non-oil economy, where the banks do
vast majority of their business.
Additionally, the Central Bank of Kuwait's hands-on
regulatory approach supports the banking system's stability and
alignment with international standards. The conservative approach
of the regulator is also evidenced by the CBK's guidance following
which the Kuwaiti banks' have taken judgmental provision far in
excess of the recently introduced IFRS 9 accounting standard. Consequently,
the system average loan-loss provisioning coverage ratio has been
consistently in excess of 250% providing significantly large cushion
and supporting the solvency profile of the banks.
RATING OUTLOOKS
The stable outlook on the banks' long-term term deposit ratings
is in line with the stable outlook on the sovereign rating.
In terms of governance considerations, Moody's does not have any
governance concern for the two Kuwaiti banks. The conservative
regulatory framework in Kuwait helps support the banks' governance practices.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure on the two Kuwaiti banks' ratings could develop
following sustained improvement in operating conditions in Kuwait.
Downwards pressure on the banks' ratings could develop from a significant
deterioration of domestic operating conditions which could lead to asset
quality deterioration, and/or a material deterioration in the banks'
capitalization, profitability and liquidity.
Lowering of Moody's government support assumptions or further weakening
of government's capacity to provide support would also place negative
pressure on the banks' ratings. Supported ratings that are closer
to the government's own ratings such as NBK's and KFH's deposit
ratings, are particularly sensitive to these changes.
LIST OF AFFECTED RATINGS
..Issuer: Kuwait Finance House K.S.C.P.
Downgrades:
.... Long-term Bank Deposits,
Downgraded to A2 from A1, Outlook Changed To Stable From Ratings
Under Review
Confirmations:
.... Long-term Counterparty Risk Assessment,
Confirmed at A1(cr)
.... Long-term Counterparty Risk Rating,
Confirmed at A1
Outlook Actions:
.... Outlook, Changed To Stable From
Ratings Under Review
..Issuer: National Bank of Kuwait S.A.K.P.
Downgrades:
.... Long-term Counterparty Risk Assessment,
Downgraded to A1(cr) from Aa2(cr)
.... Long-term Counterparty Risk Rating,
Downgraded to A1 from Aa2
.... Long-term Bank Deposits,
Downgraded to A1 from Aa3, Outlook Changed To Stable From Ratings
Under Review
Outlook Actions:
.... Outlook, Changed To Stable From
Ratings Under Review
..Issuer: NBK SPC Limited
Downgrades:
.... Backed Senior Unsecured Medium-Term
Note Program, Downgraded to (P)A1 from (P)Aa3
.... Backed Senior Unsecured Regular Bond/Debenture,
Downgraded to A1 from Aa3, Outlook Changed To Stable From Ratings
Under Review
Outlook Actions:
.... Outlook, Changed To Stable From
Ratings Under Review
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
NBK is headquartered in Kuwait and has total assets of KWD29.2
billion (USD96.5 billion) at the end of December 2019.
KFH is headquartered in Kuwait and has total assets of KWD19.4
billion (USD63.9 billion) at the end of December 2019.
The local market analyst for these ratings is Nitish Bhojnagarwala,
+971 (423) 795-63.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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
Vice President - Senior 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
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: 44 20 7772 5456
Client Service: 44 20 7772 5454
