Capital Intelligence (CI) has affirmed Industrial Bank of Kuwait’s (IBK) Financial Strength Rating (FSR) at ‘A’. The FSR is supported by the bank’s very strong liquidity, stable long-term funding base, and robust capital position, as well as by excellent asset quality and more than full loan-loss reserve (LLR) coverage.
The main rating constraints are the specialised nature of the bank, the resulting concentrations in its asset base, and the low growth in loans. The bank’s net interest margin (NIM) has continued to decline and although profitability is not particularly strong, this is not seen as being a major constraining factor, given the very high LLR coverage and the very strong capital position. In view of the effective majority government ownership, the state funding line in place, and IBK’s importance to the industrial sector in Kuwait, the Support Rating is maintained at ‘2’, incorporating a very high probability of support from the Kuwaiti government in case of need. In view of this, the Long-Term and Short-Term Foreign Currency (FC) Ratings are affirmed at ‘A+’ and ‘A2’ respectively, reflecting the sustained strong financial profile of the bank. The Outlook for all Ratings is ‘Stable’. Given the size of the bank (end 2013 total assets of $2,334 million) and its specialist nature, ratings are unlikely to rise above the current level.
The Industrial Bank of Kuwait was established in 1973 to promote industrial development, primarily in Kuwait, but also throughout the Gulf region in general. However, non-Kuwait lending remains minimal. The bank is not listed on the Kuwait Stock Exchange (KSE). The top four shareholders are governmental, thus constituting 62.68 per cent majority government ownership. IBK is a specialised bank with a remit to make generally longer-term loans to strategically important commercial enterprises and industrial projects. The bank does not engage in retail banking and acceptance of commercial deposits is normally very limited.
IBK receives substantial long-term low cost funding from the government, which it uses to extend term loans to industry at both market and preferential rates. The bank also provides short-term commercial loans, such as working capital facilities to its industrial customers. IBK administers three loan portfolios on behalf of the government: the Agricultural Finance Portfolio, the Handicrafts/Small Enterprises Finance Portfolio, and (since late 2008) the Islamic Industrial Finance Portfolio. Management is well regarded and lending policies have always been very conservative. Heavy emphasis is placed on secured transactions, particularly for the industrial loan portion of the portfolio.