Fitch Affirms Bahrain's Ahli United Bank and Subsidiaries' IDRs

11/09/2013 08:36 AST

Fitch Ratings has affirmed Ahli United Bank's (AUB) Long-term Issuer Default Rating (IDR) at 'BBB+', Ahli United Bank (Kuwait)'s (AUBK) at 'A-' and Ahli United Bank (UK)'s (AUBUK) at 'BBB+'. The Outlook on the Long-term IDRs is Stable.

At the same time, Fitch has downgraded AUB's Viability Rating (VR) to 'bbb' from 'bbb+'. The downgrade reflects the heightened risk to the group from its 85%-owned subsidiary in Egypt (the Egyptian sovereign's local and foreign currency IDRs are 'B-' with a Negative Outlook). Fitch has affirmed AUBK's and AUBUK's VRs at 'bbb-'.

A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS - IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS

AUB's IDRs and Support Rating reflect the high probability of support from its core shareholder with an 18.5% stake in the bank, the Public Institution for Social Security (PIfSS), an arm of the State of Kuwait ('AA'/Stable). The very strong links between PIfSS and AUB date back to before the creation of AUB and include, inter alia, PIfSS's strong interest as a shareholder in both AUB and AUBK (12.2% stake). Nevertheless, support from PIfSS is constrained by Bahrain's Country Ceiling ('BBB+') and the Stable Outlook reflects the Outlook on the Bahraini sovereign ratings.

AUBK's IDRs, Support Rating and Support Rating Floor reflect the extremely high probability of support from the Kuwaiti authorities, if required. Kuwait has a long history of sovereign support for the entire banking system, and Fitch believes AUBK would be no exception if needed, commensurate with its position in the banking system (6% of banking sector assets at end-H113). In addition, the Kuwaiti state owns a 14.2% stake in the bank through PIfSS and the Kuwait Investment Authority.

AUBUK's IDRs and Support Rating reflect the high probability of support from its parent, AUB, and ultimately from its parent's core shareholder, PIfSS. AUBUK is wholly-owned by AUB and is considered a core subsidiary. As such, its IDRs are in line with those of its parent and subject to the same constraint. The Stable Outlook reflects the Outlook on AUB's Long-term IDR.

RATING SENSITIVITIES - IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS

AUB's IDRs and Support Rating are sensitive to any change in Fitch's view of PIfSS's ability or propensity to provide support or to any change in Bahrain's Country Ceiling. An upward revision of Bahrain's Country Ceiling would lead to an upgrade of AUB's Long-term IDR by one notch. The IDRs would be downgraded if there were a downward revision of Bahrain's Country Ceiling or if Fitch believed that PIfSS's ability or willingness to support were lower.

AUBK's IDRs, Support Rating and Support Rating Floor are sensitive to any change in Fitch's view of the willingness or ability of the Kuwaiti authorities to provide support.

AUBUK's IDRs and Support Rating are sensitive to any change in Fitch's view of the ability or willingness of AUB to support its subsidiary. The ratings could also be sensitive to any change in AUBUK's ownership or importance to the group, which Fitch considers unlikely.

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