Standard & Poor’s Ratings Services has raised its long-term counterparty credit and certificate of deposit ratings on National Bank of Kuwait SAK (NBK) to ‘A’ from ‘A-‘ and on Commercial Bank of Kuwait (CBK) to ‘BBB+’ from ‘BBB’. At the same time, Standard & Poor’s affirmed its ‘A-2’ short-term counterparty credit rating on CBK. The outlook on the two banks is stable.
In addition, Standard & Poor’s revised its outlook on Gulf Investment Corporation GSC (GIC) to positive from stable, and affirmed its ‘BBB+/A-2’ ratings on the bank.
“The rating action on NBK reflects the bank’s long track record of strong performance, its pre-eminent position in its domestic market, and adequate capitalisation,” says Standard & Poor’s credit analyst Emmanuel Volland. “The upgrade of CBK mainly reflects the bank’s improving asset quality and financial performance. The changes in management structure and operations of prior years are bearing fruit for CBK, which is now in a position to sustain satisfactory performance and balanced growth in the medium term,” adds Standard & Poor’s credit analyst Anouar Hassoune.
The ratings on Kuwaiti banks benefit from the protected competitive environment, the government’s supportive policy toward the banking sector, and the excellent risk-reward balance of the domestic retail market, says the agency. The banks face a major challenge, however, as they operate in an essentially mono-industrial country, which is highly sensitive to oil-price fluctuations and which has restricted banking opportunities due to a limited number of customers.
The stable outlook on NBK and CBK mainly reflects the banks’ strong commercial and financial profile, also taking into account the embedded risk of operating not just in a volatile region, but also in a country that is primarily dependent on oil production and refining. Overall, NBK’s pre-eminent domestic position appears untouchable, enabling the bank to mitigate risks linked to the restricted playing field of the non-oil private sector. The stable outlook on CBK anticipates stability in its financial performance and asset quality.
“The outlook revision on GIC reflects the early results of the implementation of its new strategy with improvements in its customer franchise, commercial dynamism, and profitability”, says Volland. It is also based on GIC’s continuing fulfilment of its corporate mission to support the growth of private enterprise in the Gulf and operate in its present business lines. This would allow GIC to benefit from business that naturally comes from its position as one of the strategic institutions in the Gulf. The ratings could therefore be raised if the bank is able to further develop its customer franchise and deliver a sustainable increase in profitability. On the other hand, any significant change in the bank’s strategy or geographic focus could affect the ratings.