Fitch Affirms Commercial Bank of Kuwait at 'A+'; Outlook Stable

17/10/2017 13:40 AST

Fitch Ratings has affirmed Commercial Bank of Kuwait's (CBK) Long-Term Issuer Default Rating (IDR) at 'A+'; the Outlook is Stable. Fitch has also affirmed the bank's Viability Rating (VR) at 'bb'. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

IDRs, SUPPORT RATING, SUPPORT RATING FLOOR

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

Fitch's expectation of support from the authorities is underpinned by Kuwait's strong ability to provide support to its banks, as reflected by its rating (AA/Stable) and 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. There is high contagion risk among domestic banks (Kuwait is a relatively small and interconnected market). We believe this is an added incentive to provide state support to any Kuwaiti bank if needed, in order to maintain market confidence and stability.

The Stable Outlook on CBK's Long-Term IDR reflects the Stable Outlook 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 CBK, 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.

VR

CBK continues to benefit from a fairly stable operating environment in Kuwait despite the economic impact of low oil prices. The bank is exposed to lower economic growth, but Fitch believes that the government's continuing capital spending plans will partially offset the pressures.

CBK has a moderate franchise in Kuwait and a good presence in the corporate banking sector. CBK's brand and adequate branch network underpin the bank's distribution capabilities. The bank's business model is domestic-led.

Click here for more

Press Release