By Martin Morris
Ratings agency revision reflects KFH’s exposure to distressed Kuwaiti investment companies.
Fitch Ratings on Wednesday affirmed Kuwait Finance House's (KFH) Long-term Issuer Default Rating (IDR) at 'A+' and Short-term IDR at 'F1'.However, KFH’s Individual Rating was downgraded to 'C/D' from 'C' and placed on Rating Watch Negative (RWN). KFH's Support '1' and Support Rating Floor 'A+' were affirmed. The Outlook for the Long-term IDR is Stable.
The downgrade in KFH's Individual Rating reflects Fitch's concerns that the bank is highly exposed to Kuwait's distressed investment companies, which contributed in part to the bank's significantly higher loan impairment provisions and impaired loans for 2008.
"While the Kuwaiti sovereign support package to stabilise financial markets, approved last week, is a positive development, it is too early to judge its impact on KFH's credit fundamentals," said Mahin Dissanayake, Associate Director in Fitch's Financial Institutions team.
The RWN on KFH's Individual Rating reflects the continuing uncertainty surrounding Kuwaiti investment companies, as well as KFH's large exposure to real estate, local equities and other investments, which are experiencing sharply lower valuations in the current downturn.
Fitch said it will resolve the RWN once it has reviewed KFH's H1 2009 figures and assessed the bank's future provisioning requirements, asset quality and the impact on profitability and capitalisation.
The agency went on to say that KFH's IDRs and Support Rating reflects its view that there is an extremely high probability that the bank would receive support from the Kuwaiti authorities, if required. This view is based on the State's strong history of supporting local banks, KFH's government-related shareholders and its systemic importance. Downside risk to the IDRs is limited as the Long-term IDR is at the Support Rating Floor.
Established in 1977 as Kuwait's first Islamic bank, KFH offers a wide range of Shari'ah-compliant financial products and services. It is the second largest bank in Kuwait.