Fitch Ratings has assigned Kuwait Real Estate Bank (KREB) a Long-Term Foreign Currency and Short-Term Ratings of BBB+ and F2, respectively. Additionally, the agency has assigned KREB an Individual Rating of C/D and a Support Rating of 2. The Outlook on the Long-Term Rating is stable.
KREB's Long-Term and Support ratings reflects a history of strong support for local banks by the Kuwait authorities. The Individual Rating reflects its small franchise and restricted license that has affected its ability to compete, weak but improving asset quality, better profitability, and adequate capital.
Strategically, KREB is at a crossroad. It potentially has the opportunity to reinvent itself following recent changes in Kuwait's banking law that allow for more Islamic banks. KREB is only able to offer finance for real estate purposes under its current restricted license and has found it difficult to compete with commercial banks that have encroached into its market.
If approved by the authorities to convert to an Islamic bank, KREB will be able to operate unrestricted in a market that currently has only one player, Kuwait Finance House. This will, however, require significant investment and is only likely to begin towards the end of 2004.
KREB has been dealing with the consequences of poor past management and asset quality. Since 1999 progress has been made in setting up policies and procedures, investing in systems, creating new products and reducing non-performing loans (NPLs). Its profitability has improved, and should continue to do so, helped by reduced provisions and funding costs, but remains low compared with other commercial banks in Kuwait.
KREB's real estate focus means a high element of lending is property-secured, although loans to government-employed individuals have risen. This trend has diversified its risk exposures, but concentrations by client remain. Its asset quality is weak, although it has been improving with NPLs currently down to below 20 percent of loans from a recent high of 40 percent. Its loan loss reserve coverage is low although this is compensated by a high level of property collateral and actual capital charge-offs have so far been low. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
