Mubasher: Fitch Ratings has affirmed National Bank of Kuwait 's (NBK) and NBK International's (NBKI) Long-Term Issuer Default Rating (IDR) at 'AA-', with a Stable Outlook.

The global rating agency also affirmed NBK's Viability Rating (VR) at 'a-', according to a statement.

It is highly likely that the Kuwaiti authorities provide support to all domestic banks if applicable, a fact that is reflected by NBK's Support Rating (SR) and Support Rating Floor (SRF), Fitch said.

“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 bank's size, franchise, funding structure, and level of government ownership,” the rating agency added.  

NBKI's IDRs and SR are based on Fitch's assessment that its parent, NBK, is ready to give it a hand when necessary. The ratings of NBKI are not different from its parent which emphasises Fitch views that the international unit is “strategically important for NBK”.

NBK is benefitting from the stability of the Kuwaiti operating environment, Fitch noted, adding that the bank is exposed to sluggish growth, but the effect of which can be offset by the government’s continuing capital spending plans.

“NBK benefits from a diversified business model, wider opportunities, and a larger size for it to reduce concentrations compared with domestic peers. However, concentrations by sector and single obligor remain high by international standards,” Fitch revealed.

As per Fitch’s estimates, NBK is expected to keep its profitability in spite of the volatility that arises from its regional and international expansion.

NBK is exposed to international markets through its subsidiaries and some of these markets are challenging; however market risk facing the Kuwaiti bank is “well-managed and controlled”, but challenging markets, including the Egyptian and the Bahraini, pressure NBK’s asset quality.

“NBK's IDRs, SR, and SRF are sensitive to a change in Fitch's assumptions around the Kuwaiti authorities' propensity or ability to provide timely support to the banking sector or the bank. At present, we do not see much likelihood of a change,” Fitch said.

Furthermore, NBKI's ratings can be downgraded if the support of NBK or the Kuwaiti authorities to the bank diminished.

It is worth noting that NBK achieved an increase of 12.5% in profits during the first six months of 2019 compared to the same period a year ago, reporting a profit of KWD 209.09 million ($689 million).