Al Ahli Bank of Kuwait’s ratings affirmed

May 17, 2014 9:38 am

Capital Intelligence (CI) announced today that it has affirmed the Financial Strength Rating (FSR) of Al Ahli Bank of Kuwait (ABK) at ‘a-‘.

The rating is supported by the very strong capital adequacy and by good overall asset quality, and more than full loan-loss reserve coverage. Although profitability at the net level increased in 2013, this was a reflection of lower provisioning rather than of any growth in either gross income or operating profitability.

Nonetheless, profitability at the operating level remains robust and therefore, net profitability is overall neither a supporting nor a constraining factor for the rating. The same to some extent applies to liquidity.

Although lack of disclosure of the level of deposits by non-bank financial institutions produces liquidity ratios that appear tight by international standards, there nonetheless appears to be a tightening bias, particularly in the net liquid asset and net loans to stable funds ratios and therefore, liquidity is to some extent a constraining factor. CI also affirms the Long-Term Foreign Currency (FC) Rating at ‘a’ and the Short-Term Foreign Currency Rating at ‘a2’. Reflecting the high likelihood of official financial support if needed, ABK’s Support Rating remains at ‘2’. The Outlook for all Ratings continues to be ‘Stable’.

Given its strong financial profile, ABK would be well placed to benefit from any upturn in the domestic economy. The question therefore is whether such growth is likely. Currently, an upturn seems much more likely that at any point over the last four years – although it must also be admitted that the same was the case a year ago and progress on the ground was limited. As always, for domestic activity to quicken appreciably an increase in domestic governmental expenditure would be required – particularly on projects. This in turn needs the cooperation of parliament. This at last seems to be something that is more likely – although still not assured.

ABK was established in 1967 and opened for business in April 1968. With end 2013 total assets of USD 11.3 billion, ABK is the smallest amongst the five Kuwaiti commercial banks, as measured by total assets. The Bank operates an expanding domestic network of 30 branches and over 50 ATMs. The Bank established its first foreign branch in Dubai in 1986. In January 2009, ABK opened its second UAE branch in Abu Dhabi. Despite this, the Bank remains very focused on the Kuwaiti market and international ambitions are limited in scale. A wholly-owned investment company subsidiary, Ahli Capital Investment Company, was formed in June 2006 and commenced operations in early 2007.

The Bank’s share capital is widely held by Kuwaiti-based private individual and institutional shareholders, but ABK’s effective controlling shareholder bloc is the locally prominent Behbehani family.

Primary Analyst
Rory Keelan
Senior Credit Analyst
Tel: +357 2534 2300