Moody's Investors Service has upgraded to D with stable outlook from D- the financial strength rating (FSR) of Al Ahli Bank of Kuwait (ABK). The A2/Prime-2 foreign currency deposit ratings and their outlooks remain unchanged.
Moody's said that this rating action reflects the continuing improvement in the bank's financial fundamentals and risk profile, underscored by significant reductions in problem loans, greatly enhanced coverage by loan-loss reserves, as well as sustained reductions in the level of related-party exposures. ABK's high capital ratios support further growth opportunities and remain at a level consistent with the bank's risk profile. The upgrade also reflects the bank's improved efficiency stemming from investments in technology, workforce rationalisation and attention to costs. Although ABK is one of the smaller of the Kuwaiti commercial banks, enhanced emphasis on deposit gathering has improved the bank's deposit franchise, while its growth focus remains the retail
market. Despite the departure of the bank's CEO in 2003, ABK's capable and experienced management team remains a positive factor.
Moody's noted that the FSR takes into account ABK's geographic concentration within the oil-dominated, and somewhat limited, Kuwaiti operating environment. Although currently flush with funds from the boom in the price of crude and the rebuilding of Iraq, the small size of the economy, its dependence on oil and on state spending, and the existence of a small number of large corporations leads to significant funding and credit concentrations for the banking sector as a whole, and ABK is no exception. Moreover, the overcrowded banking market challenges the overall franchise in Kuwait and limits growth opportunities. Although the bank's profitability remains adequate, ABK continues to keep a large proportion of low-yielding Government Debt Bonds on its books, which reduce earnings and add pressure to scale the franchise. Given recent regulatory changes in Kuwait, managing funding costs will remain a significant challenge for the bank.
Headquartered in Kuwait, Al Ahli Bank of Kuwait had consolidated assets
of KWD1.7 billion (US$5.5 billion) in September 2004.
