Fitch affirms Industrial Bank of Kuwait 'A+' rating

Fitch Ratings has affirmed Kuwait-based Industrial Bank of Kuwait's (IBK) Long-term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook, and its Viability Rating (VR) at 'bb'.

IBK's IDRs and Support Rating reflect the extremely high probability of support from the government of Kuwait, should it be required. The VR reflects the bank's modest franchise, restricted activities and consequent balance sheet concentrations, in addition to pressure on asset quality. It also reflects the bank's strong capitalisation and its secure long-term funding.

Although as a development bank, profitability is not necessarily the overriding consideration for IBK; the bank has a fairly good track record of achieving profits despite recent asset quality issues in the Kuwaiti market. Profitability improved in 2010 and again in 9M11 with operating profit up by about 19 per cent year- on-year at end-9M11. The improvement was almost entirely because of a sharp drop in impairment charges.

Non-performing loans decreased slightly to 26 million Kuwaiti dinar or 7.2 per cent of total loans, slightly down from 7.5 per cent at end-2010. The improvement was mainly a result of write-offs. Reserve coverage improved significantly in 2010 and remained satisfactory at end-9M11, at 94 per cent. Unreserved impaired loans were insignificant at less than 1 per cent of the bank's equity. IBK is very well capitalised, even when taking into account the still relatively weak loan quality, with Tier 1 and Fitch core capital ratios of 37.8 per cent and 41.2 per cent at end-9M11 (38.5 per cent and 40.5 per cent, respectively, at end-2010). The bulk of the bank's funding comes from a 20-year subordinated loan granted by the government of Kuwait, which matures in 2027. Liquidity is sound, with government securities and interbank deposits amounting to about one-third of the balance sheet. IBK was set up in 1973 to develop, promote and finance the Kuwaiti industrial sector. It is the only development bank in Kuwait.

The government of Kuwait is IBK's largest shareholder, with a 49 per cent direct ownership through its own 31per cent stake, the Central Bank of Kuwait's 13 per cent stake and the Public Institution for Social Security's 5per cent stake. The Kuwaiti government owns a further 14 per cent indirectly through Wafra International Investment Company, an investment management company wholly-owned by the Public Institution for Social Security.