S&P upgrades NBK's long-term rating from A- to A

The rating action on NBK reflects the bank's long track record of strong performance, its preeminent position in its domestic market, and adequate capitalization," said Standard & Poor's credit analyst Emmanuel Volland. NBK is the largest Kuwaiti bank, with total consolidated assets of Kuwaiti dinar (KD) 5.2 billion ($17.3 billion, at KD0.3 to $1) at June 30, 2003, he added. The bank's distribution capability, including advanced alternative distribution channels, is unrivalled by domestic competitors. NBK has the leading market share in retail banking and enjoys privileged access to most of the country's major corporations. The bank is looking to expand regionally in the Arab world, with the aim of growing revenues and diversifying geographically.

NBK is one of the most profitable financial institutions in the Gulf. ROE has been above 20% over the past 10 years, which is an excellent performance given the bank's strong capital base. The bank benefits from an efficient cost structure and low cost base of domestic deposits. In addition, NBK's dominance in most business lines means that the bank has substantial pricing power. Finally, the bank's continuous expansion of its retail banking activities is bearing fruit, as it is NBK's most profitable business line (accounting for 46% of its operating income in 2002).

Overall, NBK's preeminent domestic position appears untouchable, enabling the bank to mitigate risks linked to the restricted playing field of the non-oil private sector, and to maintain healthy operating profitability. Planned regional expansion could, however, affect NBK's risk profile and capital leverage.