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”. “The rating also reflects our view of the strength and depth of NBK's management team and its clear strategy”, Moody’s added.

Moody’s in the report issued yesterday 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 expect “the (Kuwait) authorities to continue to miss spending targets at least into the budgetary year 2011-12. Implementation of the government’s development plan is likely to continue to face bureaucratic delays, while the extent and manner of involvement of Kuwait banks in the financing of a series of planned projects remains unclear”. Nonetheless, Moody’s stresses that “NBK is well placed to utilize opportunities as they arise.”

Moreover, Moody’s rates Kuwait’s operating environment negatively compared to other GCC countries, “partly reflecting the significant volatility in the country’s GDP growth, as well as the potentially lengthy resolution of legal issues through the domestic court system in accordance with World Bank guidance”, according to Moody’s. 

Moody’s pointed out that “NBK enjoys an excellent reputation, particularly in its domestic market, and should benefit from `flight to quality' in the event of market tension”. The credit rating agency added that NBK also “continues to enjoy excellent cost efficiency compared with both international and GCC standards”.

Moody’s stressed that “NBK's management is characterized by its depth and breadth while 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 highlighted that NBK’s Q1 2011 figures show that net income grew an annualized 7% on full year 2010 results, largely reflecting higher income contribution by its associates.

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”.