Fitch affirms ABK's IDRs; downgrades individual rating to 'C/D'

At the same time, its Individual Rating has been downgraded to 'C/D' from 'C'. ABK's Support '1' and Support Rating Floor 'A-' have been affirmed. The Outlook for the Long-term IDR is Stable.

ABK's IDRs and Support Rating reflect Fitch's view that there is an extremely high probability of support from the Kuwaiti authorities, if required, a view based on the State's strong history of supporting local banks and AKB's systemic importance.

The downgrade in AKB's Individual Rating reflects Fitch's concerns that the bank's financial position is exposed to tougher operating conditions in Kuwait.

Profitability is likely to come under further stress from rising impairment costs and investment write-downs, at a time when loan growth is slowing.

Although capitalisation is adequate, Fitch believes that ABK's equity base will continue to be adversely affected by declining securities values.

The loan book also has sizable concentrations to domestic real estate and construction, sectors which have been severely affected by the economic downturn.

While these issues are not specific to ABK, Fitch believes that the smaller banks in Kuwait which have less diversified franchises will be more vulnerable to downside risks.

To date ABK's asset quality remains satisfactory and Fitch understands that the bank has minimal exposure to corporates and banks which recently defaulted in Saudi Arabia and Bahrain.

ABK's liquidity position has improved slightly with loan growth slowing in Q109, although the bank's undiversified and highly concentrated funding profile remains a concern.

Founded in 1967, ABK (8% market share) is engaged in retail and corporate banking, treasury and investment services. The bank operates a network of 22 branches and 48 ATMs, supported by internet and telephone banking and a call centre.

ABK has a branch each in Dubai and Abu Dhabi. A Kuwait-based subsidiary, Ahli Capital Investment Company, provides fund management and advisory services. ABK is listed on the Kuwait Stock Exchange.

The Individual Rating reflects the standalone strength of a bank, while the Support Rating reflects the probability of support from the majority shareholder and/or government.