Fitch Affirms Boubyan Bank at 'A+'; Upgrades VR to 'bbb-'

17/10/2017 13:39 AST

Fitch Ratings has affirmed Boubyan Bank's (BBY) Long-Term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook. Fitch has also upgraded the bank's Viability Rating (VR) to 'bbb-' from 'bb+'.

The VR upgrade reflects BBY's improving franchise, effective strategy implementation and higher-than-peers earnings and profitability.

A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

IDRs, SUPPORT RATING, SUPPORT RATING FLOOR

BBY's IDRs are support-driven. The Support Rating (SR) and Support Rating Floor (SRF) reflect an extremely high probability of support being provided by the Kuwaiti authorities to all domestic banks if needed. This is reflected in BBY's SR of '1' and SRF of 'A+', in line with Fitch's Domestic-Systemically Important Bank SRF.

Fitch's expectation of support from the authorities is underpinned by Kuwait's strong ability to provide support to domestic banks, as reflected by the sovereign rating (AA/Stable) and a strong willingness to do so irrespective of the banks' size, franchise, funding structure and the level of government ownership. This view is reinforced by the authorities' track record of support for the domestic banking system in case of need.

The Central Bank of Kuwait operates a strict regime with hands-on monitoring to ensure the viability of the banks, and has acted swiftly in the past to provide support where needed. Contagion risk among domestic banks is high (Kuwait is a small and interconnected market) and we believe this is an added incentive to provide state support to any Kuwaiti bank if needed, to maintain market confidence and stability.

The Stable Outlook on BBY's Long-Term IDR reflects that on the Kuwaiti sovereign rating.

We assign Short-Term IDRs according to the mapping correspondence described in our bank rating criteria. An 'A+' Long-Term IDR can correspond to a Short-Term IDR of either 'F1' or 'F1+'. In the case of BBY, we opted for 'F1', the lower of the two Short-Term IDR options. This is because a significant proportion of the Kuwaiti banking sector funding is related to the government and a stress scenario for the banks is likely to come at a time when the sovereign itself is experiencing some form of stress.

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