Moody’s assigns NBK a stable outlook and financial strength of “C” on the back of a weakening operating environment in Kuwait

Moody’s Investors Service today affirmed National Bank of Kuwait’s (NBK) “Stable” outlook. Moody’s also assigned NBK a standalone Bank Financial Strength Rating (BFSR) of “C” and a long-term global local currency (GLC) and long-term foreign currency deposit ratings of “Aa3”. The rating action was mainly driven by the agency’s concerns over the operating environment in Kuwait and the geopolitical unrest in the Middle East.

Moody’s highlighted in its rating rationale that the rating action has been prompted by the weakening credit conditions in the Kuwaiti banking system arising from problems in Kuwaiti investment companies, the Kuwaiti real estate sector (particularly commercial real estate) and the weak performance of the Kuwait Stock Exchange. Moody’s expressed further concerns on the implementation of the Government’s 5-year plan. The rating agency expected the Government to continue to miss spending targets and the current spending levels are unlikely to be of scale to resolutely revive credit growth in the system.

Moody’s noted that despite the deteriorating operating conditions in Kuwait, NBK’s financial performance remains robust. NBK’s reported asset quality has exhibited strong resilience amidst adverse operating conditions in 2009 and 2010, outclassing its domestic competitors. The rating agency also highlighted the sustainability of NBK’s good revenue base and comfortable margins during 2010, which together with high efficiencies support its capacity to generate strong profits going forward.

Moody’s further stressed on NBK’s robust capitalization underpinning its loss absorption capacity and placing the bank in a preferential position for growth by utilising opportunities that may arise once increased government spending materialises.