Fitch Ratings has affirmed Kuwait Finance House's (KFH) Long-Term Issuer Default Rating (IDR) at 'A+'; the outlook is stable. It also affirmed KFH’s Support Rating (SR) at “1” and Support Rating Floor (SRF) at “A+”. Fitch has also upgraded the bank's Viability Rating (VR) to 'bb+' from 'bb'. The VR upgrade incorporates KFH's reduced risk appetite to non-core banking assets, especially equity securities and investment properties. It also includes an improvement in the bank's asset quality and profitability, supported by a more transparent strategy and good execution.
Group Chief Executive Officer at KFH, Mazin Alnahedh said that the Global Rating Agency affirmed in its report several strengths and privileges at KFH; mainly its robust financial position and the level of government and private sector ownership, indicating the authorities' readiness to provide support.
He added that the bank improved its asset quality and enjoys a large market share. KFH is a leading Islamic financial institution spanning different countries in the world. The benefits of KFH's improving risk controls, supported by additional group integration. KFH has good liquidity management and achieved good profitability and stability in all indicators, including the total operating revenues and the investment revenues.
He said that KFH-Group increases coordination among the Group units, indicating that KFH constantly endeavors to improve its asset quality while continuing its prudent policy in risk management as per best practices.
The bank has a strong management team, well experienced in local and regional banking. KFH's strategic objectives are increasingly well articulated and consistent, balancing between domestic and regional/international growth. Management has proven capability to execute in a challenging environment.
KFH has a strong franchise as the largest Islamic bank in Kuwait and the country's second-largest bank, with market shares of about 23% by assets at end-1H17. The geographical footprint, large branch network, diversified banking and investment services, and brand strengthen the bank's distribution capabilities, deposit collection and profit margins.
KFH's financing quality is improving. The Fitch calculated impaired financing ratio is continuously declining. KFH's higher-than-peers net special commission margins (due to its regional and international presence and large low-cost retail deposit base), cost efficiency and optimization across the group have supported the group's profitability.
The capital's risk absorption capacity is adequate, supported by improving asset-quality and concentration. Fitch believes that KFH has the capacity to raise capital if needed and that expected divestments from non-core assets will continue to underpin capitalization.