Fitch Rates Industrial Bank of Kuwait IDR 'A'; Outlook Stable.

LONDON -- Fitch Ratings has today assigned ratings to Industrial Bank of Kuwait ('IBK') of Issuer Default 'A', Short-term 'F1', Individual 'C' and Support '1'. The Outlook is Stable.

The Issuer Default, Short-term and Support ratings of IBK reflect the extremely high probability of support from the government of Kuwait, should it be required. The Individual rating reflects the bank's strong capitalisation, low cost of funding, stable profitability and adequate asset quality. It also reflects the bank's modest franchise and restricted activities.

IBK is a Kuwaiti development bank providing subsidised medium- to long-term finance to the Kuwaiti industrial sector since inception, and commercial banking services to the industrial sector since 1989. The bank's licence restricts it to lending only to counterparties holding industrial licences issued by the Public Authority for Industry.

IBK is strongly capitalised; the Tier 1 and the total capital ratios were 46% and 72% respectively at end-2005. Funding is mainly from the government of Kuwait in the form of a KWD200 million long-term loan, providing IBK with a low cost of funds. Operating profit in 2005 increased 83%, driven by higher net interest income as margins widened on higher interest rates, as well as lower impairment charges. Asset quality is adequate; impaired loans were 7% of gross loans at end-2005, mainly due to four impaired loans; one is pre-invasion and the other three are fully covered by collateral or reserves.

IBK was established in 1973. The government of Kuwait retains 49% direct ownership and 12% indirect ownership; the balance is split between local financial institutions and industrial companies.

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