Moody’s: NBK’s ratings reflect its dominant position, resilient asset quality, and strong financial metrics

In its latest report on National Bank of Kuwait (NBK), the credit rating agency Moody’s said that NBK’s financial strength rating reflects the “bank's dominant position in its domestic market, strong financial metrics, the resilience of its asset quality, and good capitalization levels”.

Moody’s in the report issued recently stressed that “NBK's asset quality has exhibited a level of resilience unparalleled by its domestic peers. In particular, as at YE2010, the bank's NPLs stood at a low 1.65% while system NPLs stood at around 7%. Specific and general provisioning cover is also healthy, exceeding 200% of problem loans. NBK was less exposed to domestic and regional high profile corporate defaults than some other Kuwaiti banks, and has, so far, been able to maintain robust asset quality metrics”.

Moody’s pointed out that “Given its size and its strong position in the retail market, NBK is better diversified than smaller peers, while the bank reports superior asset quality. The credit rating agency added that NBK also “continues to enjoy excellent cost efficiency compared with both international and GCC standards”.

Moody’s said that credit conditions in Kuwait remain subdued. “Credit growth prospects depend on the effectiveness of government spending in supporting economy activity”. “Credit growth prospects in Kuwait will progressively improve, in line with the implementation of the government’s five year $100 billion development plan. At the moment this continues to face bureaucratic and political obstacles and credit conditions in H1 2011 have remained muted. Our central scenario envisions that actual government spending will grow in line with historical norms (i.e., at around a 20% rate), This implies that the government will continue to miss spending targets but that spending will remain high and will support the non-oil private sector economy”, added Moody’s. Nonetheless, Moody’s stresses that “NBK is well placed to utilize opportunities as they arise.”

Moody’s stressed that “NBK's risk management is considered adequate, with substantial independence. The bank has also launched a group risk management and governance framework which brings its subsidiaries in line with parent bank practices”.

Moody's said that “NBK is the largest financial institution in Kuwait (and largest commercial bank by a wide margin), with total assets of KWD12.899 billion (USD45.6 billion) at YE2010, accounting for just under 30% of consolidated banking system assets. The bank is the dominant player in its domestic market and, particularly, in terms of retail operations in which it reportedly captures around 35% of consumer credit, and around 40% of overall Kuwaiti salary accounts”.

Moody’s added that NBK’s “corporate lending is equally strong” and “the bank is the leader in trade finance in Kuwait and one of the few indigenous banks with the capacity to structure and underwrite large capital market transactions”.