Disclosure about Credit Rating Disclosure Form
Reference to the Capital Markets Authority's Regulations concerning Disclosure of Substantial Information and the mechanism to announce the same, and to Chapter 4, Book (10), Article 4-1-1/18. We would like to state that Fitch Ratings has upgraded the Viability Rating (VR) of KIB to ‘bb-’ (from ‘b+’). In addition, Fitch affirmed KIB’s Long-term IDR at 'A+'; with a Stable Outlook according to their report dated 18.10.2016.
Listed Company: Kuwait International Bank.
Rating Agency: Fitch Ratings.
Ratings for KIB:
- Long-term IDR affirmed at 'A+'; Outlook Stable
- Short-term IDR affirmed at 'F1'
- Viability Rating upgraded to ‘bb-‘ from 'b+'
- Support Rating affirmed at '1'
- Support Rating Floor affirmed at 'A+'
1. Long–term IDRs at (A+):
A High credit quality rating denotes expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.The modifiers “+” or “-” may be appended to a rating to denote relative status within major rating categories.
2. Short –term IDRs at (F1):
The Highest short-term credit quality indicates the strongest intrinsic capacity for timely payment of financial commitments.
3. Support Rating (SR) at (1):
A bank for which there is an extremely high probability of external support. The potential provider of support is very highly rated in its own right and has a very high propensity to support the bank in question.
4. Support Rating Floor (SRF) at (A+):
This rating reflects the agency’s view about the likelihood that the rated entity will receive extraordinary support, in case of need, specifically from government authorities.
5. Viability Rating at (bb-):
“bb” ratings denote moderate prospects for ongoing viability. A moderate degree of fundamental financial strength exists, which would have to be eroded before the bank would have to rely on extraordinary support to avoid default. However, the bank has higher vulnerability to adverse changes in business or economic conditions over time. The modifiers '+' or '-' may be appended.
Reflection of Ratings on Company’s Profile:
Reflect the successful execution of KIB’s strategy, improved assets quality and business reorganization.
Outlook : “Stable”.
Translation of Press Release or Executive Summary:
On 18 October 2016, Fitch Ratings has affirmed KIB’s Long-Term Issuer Default Rating (IDR) at 'A+', with a “Stable” Outlook.
Fitch Ratings has upgraded the Viability Rating (VR) of KIB to ‘bb-’ (from ‘b+’) owing to its improving financial profile following the successful execution of strategic objectives and business reorganisation.
KIB's VR reflects its new and experienced management team, the successful execution of strategy, expected increase in earnings, improving asset quality following write-offs and portfolio clean-up and healthy capital buffers. The rating also considers a small franchise, high credit concentrations to real estate and single borrower, in addition to evolving underwriting standards and risk controls compared to peers.
Upside for KIB's could come from further improvement in the company profile, franchise and risk appetite, in addition to a stabilised asset quality. Downside pressure on the VR could arise from weaker asset quality and capitalisation, particularly if Kuwait were to suffer a stress in the real estate sector.
KIB’s IDRs are support-driven. The 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 the SRF of 'A+'.
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), combined with Fitch's belief that there would be a strong willingness to do so. This view is reinforced by the authorities' 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) and 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 Kuwaiti banks continue to benefit from a fairly stable operating environment despite the economic impact of low oil prices. While the banks are exposed to slower economic growth, Fitch believes that the government's continuing capital spending plans will partially offset the pressures.
The Stable Outlook on the KIB's Long-term IDRs reflect the Outlook on the Kuwaiti sovereign rating.