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Capital intelligence

Ratings assigned for Boubyan Bank K.S.C.

: Saturday, July 26 - 2014 @ 13:20

Capital Intelligence (CI), the international credit rating agency, announced that it has assigned a Financial Strength Rating (FSR) of ‘BBB’ to Boubyan Bank (BB).

The rating is supported by good asset quality in terms of low non-performing Islamic financing facilities (NPIFF) ratio, more than full reserve coverage, and a still good capital adequacy ratio (CAR), despite the recent decline. In addition, the rating is supported by the existence of a strong controlling shareholder that has strengthened the Bank’s market share and competitiveness, as well as its financial profile since its arrival in 2009.

The recent growth in market share of IFFs – despite the fierce competition – also exerts positive pressure on the Bank’s FSR. The rating is constrained by moderate profitability due to substantial provision charges and low non-profit sharing income (NPSI), as well as somewhat tight liquidity as a result of a relatively high proportion of IFFs in total assets. The FSR is also constrained by high borrower concentrations in the IFF book, and the challenging operating environment in Kuwait where BB’s operations are mainly based.

The Support Level is set at ‘2’, reflecting a very high level of expected support from the Central Bank of Kuwait (CBK), which is mainly premised on the explicit government guarantee of customer deposits held with Kuwaiti banks. Financial support would also be extremely likely to be forthcoming from the controlling shareholder NBK, a bank which has the capacity to support BB in case of need. As the strong response to the rights issue in 2010 shows, BB has ready access to additional equity if needed.

Based on this support, CI assigns a Long-Term Foreign Currency Rating of ‘BBB+’ and a Short-Term Foreign Currency Rating of ‘A2’, respectively. The Outlook on all the ratings is ‘Stable’.

Incorporated in September 2004, the Bank is principally engaged in providing Sharia’a compliant banking services, and has since evolved into a medium sized player in the Kuwaiti banking system, commanding significant market shares of financings and deposits. Following a sharp weakening of its asset quality in 2009, and the arrival of NBK as a significant shareholder in the same year, BB cleaned up its balance sheet through heavy write-offs in 2010. Since then, BB has been exhibiting one of the lowest NPIFF ratios in the Kuwaiti banking sector and more than full loss reserve coverage of NPIFFs. Capital adequacy had strengthened to strong levels following a rights issue in 2010, and has remained good in spite of the decline in 2013. In that regard, NBK has been supportive in terms of capital preservation, amid the continuous growth in BB’s assets, by endorsing the decision by BB not to declare any cash dividends since NBK became a shareholder. With regard to funding and liquidity, the liquid assets ratios (in particular the net liquid assets ratio) are tighter than the sector average due to a high proportion of IFFs in total assets and relatively high interbank funding.

IFF-based liquidity ratios are also tightening because the growth in IFFs has outpaced deposit expansion, although they remain satisfactory in global context. Profitability, although moderate at the net level, is satisfactory at the operating level. This has allowed BB to absorb substantial provision charges during the last five years.

BB currently operates a domestic network of 30 branches and 111 ATMs. The Bank also holds stakes in a number subsidiaries and associated entities in Kuwait and other countries, including the UK and Indonesia, which are engaged in Islamic Banking, financial services and real estate. The Bank reported consolidated assets of KWD2,329mn (USD8.3 billion) and total capital of KWD277mn (USD984mn) at end-March 2014.

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Saturday, July 26- 2014 @ 13:20 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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