Fitch affirms Industrial Bank of Kuwait at 'A+'; outlook stable

IBK's IDRs and support rating reflect the extremely high probability of support from the government of Kuwait, in case of need. This is based on the government of Kuwait's 49% direct ownership and further 12% indirect ownership of IBK, as well as the bank's long-term government funding arrangements for its development activities. The individual rating reflects IBK's strong capitalisation, low cost of funding, stable profitability and adequate asset quality; it also reflects the bank's modest franchise and restricted activities.

Operating profits in H1 2008 increased a modest 1% yoy, reflecting higher loan impairment charges; H1 2007 income benefited from a significant recovery (KD2.3m). However, operating profits rose a healthy 22% in 2007 to KD24m. Margins and cost efficiency remain satisfactory. Asset quality is adequate; impaired loans were 4.7% of gross loans at end-H1 2008 and IBK states it has good recovery prospects for its remaining impaired loans.

A KD300m long-term low cost loan from the government of Kuwait provided 79% of IBK's end-H1 2008 non-equity funding, mitigating maturity mismatches. In Q2 2007, the government of Kuwait agreed to increase this loan to KD300m from KD200m and mandated IBK to invest a further KD100m under Shari'ah principles on its behalf. Liquidity is satisfactory. Capital ratios have declined slightly but remain strong; the Fitch eligible capital ratio was 38% at end-H1 2008.

Established in 1973, IBK is a Kuwaiti development bank providing subsidised medium- to long-term finance and commercial banking services to the local industrial sector. IBK's licence restricts it to lending only to counterparties holding industrial licences issued by the Public Authority for Industry. Subsidised lending has remained at almost half of total lending in recent years.

A report on this entity will be available shortly on the agency's subscription website, under Financial Institutions/Banks/Full Rating Reports.