Fitch Affirms Gulf Bank at 'A+'; Upgrades VR to 'bb+'

17/10/2017 13:42 AST

Fitch Ratings has affirmed Gulf Bank's (GB) Long-Term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook. Fitch has also upgraded the bank's Viability Rating (VR) to 'bb+' from 'bb'.

The VR upgrade reflects GB's continuing strong strategy implementation and improving underwriting standards and asset quality.

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

KEY RATING DRIVERS

IDRs, Support Rating and Support Rating Floor

GB's IDRs are support-driven. Its Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's view of an extremely high probability of support being provided by the Kuwaiti authorities to all domestic banks if needed. This is reflected in GB's SR of '1' and SRF of 'A+', in line with Fitch's Domestic-Systemically Important Bank SRF for Kuwait.

Fitch's expectation of support from the authorities is underpinned by Kuwait's strong ability to provide support to domestic banks, as reflected by the sovereign rating (AA/Stable) and a strong willingness to do so irrespective of the banks' size, franchise, funding structure and the level of government ownership. This view is reinforced by the authorities' record of support for the domestic banking system in case of need.

The Central Bank of Kuwait operates a strict regime with hands-on monitoring to ensure the viability of the banks, and has acted swiftly in the past to provide support where needed. Contagion risk among domestic banks is high (Kuwait is a small and interconnected market) and we believe this is an added incentive to provide state support to any Kuwaiti bank if needed, to maintain market confidence and stability.

The Stable Outlook on GB's Long-Term IDR reflects that on the Kuwaiti sovereign rating.

We assign Short-Term IDRs according to the mapping correspondence described in our bank rating criteria. An 'A+' Long-Term IDR can correspond to a Short-Term IDR of either 'F1' or 'F1+'. In the case of GB, we opted for 'F1', the lower of the two Short-Term IDR options. This is because a significant proportion of the Kuwaiti banking sector funding is related to the government and a stress scenario for the banks is likely to come at a time when the sovereign itself is experiencing some form of stress.

VR

GB continues to benefit from a fairly stable operating environment in Kuwait despite the economic impact of low oil prices. The bank is exposed to slower economic growth, but Fitch believes that the government's continuing capital spending plans will partially offset the pressures.

GB has an adequate franchise in Kuwait, both in retail and corporate banking. GB's large branch network and good brand support the bank's distribution capabilities. The bank's business model is domestic-led.

The bank has a competent management team, which is highly experienced in local and regional banking, with an improving record of strategy implementation in Kuwait. The bank's strategic objectives are consistent and cautious.

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