October 16, 2017 / 5:02 PM / 8 months ago

Fitch Affirms Warba Bank at 'A+'; Upgrades VR to 'bb-'

(The following statement was released by the rating agency) LONDON, October 16 (Fitch) Fitch Ratings has affirmed Warba Bank's (WB) Long-Term Issuer Default Rating (IDR) at 'A+'; the Outlook is Stable. Fitch has also upgraded the bank's Viability Rating (VR) to 'bb-' from 'b+'. The VR upgrade reflects WB's good strategy execution and improving 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 WB's IDRs are support-driven. Its 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 WB's SR of '1' and 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 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 WB'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 WB, 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 WB 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. WB has a nominal but growing franchise in Kuwait, with a market share of about 2% by assets at end-1H17. The bank has established a corporate-oriented business model and benefits from close links to the state due to its large shareholding by government-related entities. The bank has a good management team, experienced in local banking. WB's strategic objectives have proven to be consistent, sustainable and articulated around domestic- and organic-led growth. Management has proven a good execution record despite high balance sheet growth. Fitch's assessment incorporates WB's higher risk appetite relative to domestic peers. WB also remains highly concentrated by sector and single obligor. The bank is highly exposed to domestic real estate, a sector that can be volatile and has seen lower prices and sales in 2016 and 1H17. Fitch also considers the bank's acceptable risk controls. WB's financing-quality is resilient, with one of the lowest impaired financing ratios across the sector (0.5% at end-1H17) and very low problem financing generation. Reserve coverage continues to be high (although lower than peers) due to the prudent actions of the Central Bank of Kuwait, requiring the build-up of precautionary reserves. Fitch believes this is necessary in light of the bank's significant concentration by sector and single obligor due to Kuwait's narrow economy. Concentrations and risk appetite will remain constraints on asset-quality. WB's profitability is lower than peers but has improved (the annualised operating profit/risk-weighted assets ratio was 0.7% in 1H17). The bank's tighter margins, higher cost/income ratio and impairment charges (relative to local peers) reflect its growth phase as the bank seeks to continue to build up its franchise. The bank's earnings are primarily generated from net financing income on real estate financing and therefore would remain sensitive to domestic economic cycles. The bank's fast growth and the implementation of Basel 3 have reduced capitalisation levels and buffers over minimum requirements. WB successfully issued a perpetual tier 1 sukuk for USD250 million in March 2017 to fund its growth and boost capital ratios. Fitch, however, considers that the bank's core capital ratios remain among the weakest of peers and the capital base is small. Internal capital generation is weak due to low profitability and despite no dividend payment. Fitch believes that a rights issue will be necessary to fund growth, especially as the bank has good access to capital through its strong core shareholders. Resilient asset quality supports the risk absorption capacity of the bank's capital. Large concentrations and growth remain the main risks. WB's high reliance on wholesale funding (91% of customer deposits at end-1H17, the highest in the sector) results in deposit concentration (the top 20 deposits represented 81% of the total at end-1H17), but the largest depositors are government-related entities and some large corporates that have proven to be stable, mitigating liquidity maturity mismatches. WB's liquidity is well managed and liquidity risk remains contained. The financing/deposits ratio (92% at end-1H17) is higher than peers due to a large focus on financing growth. Liquidity flexibility is underpinned by a reasonable buffer of liquid assets (16% of total assets and 19% of customer deposits at end-1H17). RATING SENSITIVITIES IDRs, SR, SRF WB's IDRs, SR and SRF are sensitive to a change in Fitch's assumptions around the Kuwaiti authorities' propensity or ability to provide timely support to the banking sector or the bank. At present, we do not consider there is much likelihood of any change. VR An upgrade of WB's VR would be contingent on further strengthening the franchise, improving earnings and profitability and reducing risk appetite in terms of growth and concentrations. Downside pressure on the VR would result from continuous rapid growth that may deteriorate asset quality and weaken capital ratios. The rating actions are as follows: 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+' Contact: Primary Analyst Redmond Ramsdale Senior Director +44 20 3530 1836 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Gilbert Hobeika Associate Director +44 20 3530 1004 Committee Chairperson Eric Dupont Senior Director +33 1 4429 91 31 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below