KFH's Viability Rating Downgraded due to Weak Asset Quality Ratios

Fitch Ratings has downgraded Kuwait Finance House's (KFH) viability rating to bb+ from bbb-, while at the same time affirming the bank's long-term issuer default rating (IDR) at A+ with a stable outlook.

The downgrade of KFH's viability rating reflects the bank's weak asset quality ratios, the resulting high impairment charges that continue to impact profitability, and capitalisation that is lower than some peers despite significant sector concentrations in its financing book. The viability rating also considers KFH's dominant franchise in Kuwait, strong funding profile and acceptable liquidity. Upside potential for KFH's viability rating would require a significant improvement in asset quality, as well as improved capitalisation given the large financing portfolio sector concentrations. Downside risk could arise from further deterioration in the bank's risk indicators.

KFH's IDRs and support ratings reflect Fitch's view that there is an extremely high probability that the bank would receive support from the Kuwaiti authorities, if required. This view is based on Kuwait's strong history of supporting domestic banks, KFH's government-related shareholders and its systemic importance. A change in the IDRs would result from any changes in the ability or willingness of the Kuwaiti authorities to support KFH. Fitch does not view this as likely at present.

Posted in: Market Analysis