Fitch affirms The Bank of Kuwait & The Middle East at 'A-'; outlook stable

The rating Outlook on the Long-term IDR is Stable. Fitch also affirmed the bank's Support Rating Floor at 'A-' (A minus).

BKME's IDRs and Support Rating reflect expected support from the Kuwaiti authorities, in case of need. The Individual Rating reflects the bank's adequate asset quality and capitalisation, and improving profitability and cost efficiency. It also reflects the bank's relatively modest franchise, some pressure on funding and its reliance on a small and undiversified economy. The Individual Rating could suffer in the event of a further weakening of capital ratios, future asset quality deterioration after strong recent loan growth or a weakening of the bank's franchise in the face of strong competition.

BKME's profitability is satisfactory and improving. Operating profit increased by 10% in 2006 and a further 39% yoy in H107, driven by strong loan growth, a widening net interest margin (reflecting higher interest rates and the bank's emphasis on higher-margin retail lending), and a rise in fee income from the bank's investment management activities. However, margins may come under pressure as Kuwaiti banks compete for customer deposits in order to remain in compliance with the 80% loan/deposit ratio imposed by the Central Bank of Kuwait.

BKME is a medium-sized Kuwaiti commercial bank and provides a broad range of retail and corporate financial services. In August 2005 Bahrain-based Ahli United Bank (rated 'A-' (A minus)) increased its stake in BKME to 75% from 48%.