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CI: Long-term Foreign Currency Rating of ComBK raised to A+, all other ratings affirmed.

Capital Intelligence Ratings (CI Ratings or CI) today announced that it has raised the Long-Term Foreign Currency Rating (FCR) of Commercial Bank of Kuwait (ComBK) to 'A+', reflecting the strong support rating, as well as the ongoing improvement in financial metrics and above average ROAA. All other ratings are affirmed. The Outlook on all ratings is 'Stable'.

The Financial Strength Rating (FSR) of 'A-' is supported by strong asset quality and much more than full loan-loss reserve (LLR) coverage, together with both a good capital position and good liquidity. Although profitability is good at the operating level, the rating is, to some extent, constrained by continuing weak profitability at the net level due to continued high provisioning. There had been some hope that this might have slackened in the current year but instead the cost of credit has risen. The other main constraints are the concentrations (although these are reducing) in both the loan book and the deposit base. The Outlook on the FSR is 'Stable'. The Support Rating is maintained at '1', reflecting both the Kuwait government's blanket guarantee of all customer deposits placed in Kuwait, and the record of both the Central Bank and wider Kuwaiti government in supporting Kuwaiti banks in times of need. The Short-Term FCR is affirmed at 'A2'.

ComBK is Kuwait's fifth largest, conventional commercial bank. Members of the country's ruling family maintain a controlling ownership interest in the Bank. Historically, the Bank has demonstrated good asset quality, strong capital ratios and good profitability. The one longstanding vulnerability has been concentrations in both the loan and deposit bases, although reducing these is one of the bank's strategic aims and significant progress has been made. Asset quality ratios have now been restored to their very strong pre-2009 levels, and the bank's overall financial condition (except for profitability at the net level) continues to be good.

Going forward, CI Ratings expects ComBK to maintain strong asset quality, good LLR coverage, strong capital adequacy and good liquidity. However, while profitability is likely to remain good at the operating level, the Bank is likely to continue to replenish its various loss reserve accounts (loan, investment and legal) and the cost of credit is, therefore, expected to continue to be high.

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Publication:CPI Financial
Geographic Code:7KUWA
Date:Oct 20, 2016
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