Gulf Bank K.S.C. – financial strength rating raised to ‘bbb-‘, all other ratings affirmed with ‘Stable Outlook’

June 5, 2014 4:36 pm

Capital Intelligence (CI), the international credit rating agency, today announced that it had raised Gulf Bank’s (GB) Financial Strength Rating (FSR) to ‘bbb-‘. The Outlook on the FSR is accordingly revised back to ‘Stable’. The upgrade is supported in particular by the much improved asset quality and the strong capital. Also supporting the upgrade (to a lesser extent) are still sound – although tightening – liquidity and reasonably good profitability at the operating level. The main constraining factors are low profitability at the net level due to a continuing high level of risk provisioning expenses and concentrations in the lending portfolio (similar concentrations are likely in customer deposits although disclosure is insufficient to confirm this). The Support Level is maintained at ‘2’. Accordingly, the Long- and Short-Term Foreign Currency Ratings (FCR) are affirmed at ‘bbb+’ and ‘a2’ respectively, with a ‘Stable’ Outlook for both ratings.

GB is clearly progressing towards achieving its financial objectives, but unless additional capital is raised this could take several more years. Despite the considerable improvement seen in 2013, a small gap between non-performing loans (NPLs) and loan loss reserves (LLR) still remained – although current profitability levels mean that achieving a 100% coverage level during 2014 is now very likely.

Gross loan growth has been weak over the 2011-13 period and this has helped to maintain the capital adequacy ratio (CAR) at a good level. Prospects for growth in loans for 2014 are possibly better, given the probability of greater government spending under the much delayed infrastructure program. Stronger loan growth would help to accelerate growth in net interest income – although possibly at the cost of some pressure on CAR, given the currently still modest rate of internal capital generation. The latter in turn is a reflection of a continuing high annual provisioning cost as LLR coverage is rebuilt. With LLR coverage now close to 100%, the rate of internal capital generation may increase. Ideally however, additional capital would also be raised to allow asset growth to accelerate without compromising the currently strong CAR – but there are no indications that such an increase is imminent. A Tier 2 issue is perhaps a more likely possibility given the moves in this direction by other Kuwaiti banks.

Gulf Bank was established in 1960 and commenced operations in 1961. Following a substantial net loss in 2008, the Bank was recapitalized in January 2009 through a KWD376mn rights issue. This, in turn, significantly altered the shareholding structure. Having taken up the unsubscribed portion of this rights issue, Kuwait Investment Authority (KIA-Kuwait’s sovereign wealth fund) became one of Gulf Bank’s largest shareholders with a shareholding of roughly 16%.

With end 2013 total assets of USD 18 billion, GB remains the second largest of the five Kuwaiti commercial banks in terms of the Kuwait-only balance sheet, but falls to third on a consolidated basis behind another bank with a significant number of overseas banking subsidiaries. The Bank operates one of the larger domestic networks in Kuwait comprising 57 branches (as at April 2014), together with well over 200 ATMs, supporting its reputation as a bank with a particularly strong retail offering.


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

Secondary Analyst
Chris Nicolaou
Senior Credit Analyst