Al Manar Financing and Leasing Company's Corporate ratings affirmed

The Ratings are supported by the recovery of new lending, better asset quality indicators, and an improved funding profile. Ratings, however, remain constrained by the high Non-Performing Financing Receivables (NPFR) ratio and the barely adequate loss reserve coverage; they are also constrained by the low earnings (and earning capacity), a narrow revenue base, and the small size of the balance sheet. The Outlook for the Rating is 'Stable'.

Al Manar saw a turnaround in the first nine months of 2012 with a return to asset growth, in contrast to the contractions seen in the past few years. The growth of its financing receivables book was a positive development that compared favourably to some of its immediate peers.

Nonetheless, Al Manar continues to be a small company with a modest share of the consumer financing sector in Kuwait. Asset quality indicators remain poor, with a high NPFR ratio, despite the fact that in money terms NPFRs have been declining year-on-year (including in the first nine months of 2012).

NPFR loss coverage, however, has been improving and is supported by a fairly substantial portfolio of collateral. While cash and liquid asset holdings are relatively low, Al Manar's liquidity is supported by short-term financing receivables. Despite increased borrowings and a lower equity base from the losses incurred in 2011, Al Manar's leverage remained low at end Q3 2012.

Al Manar's revenue stream remains very narrow and is largely related to its financing receivables book. With the exception of the financing receivables book, Al Manar has a modest portfolio of investments.

Contributions from the investment portfolio have been largely negative over the past few years in view of the fair value and impairment losses recognised. With the recent favourable valuation by independent consultants, further impairments are likely to be limited, if any.

Nonetheless the full-year position for the Company is likely to be at best a modest net profit. Despite the modest recovery in earnings in the first nine months of 2012, to achieve an improvement in the Rating would require the Company to demonstrate sustained portfolio growth and a more diversified funding base, while maintaining an improving asset quality trend and improved earnings.

Al Manar Financing and Leasing Company K.S.C. was established in November 2003. Al Manar's main area of activity is the provision of consumer finance, largely for the purchase of automobiles, although it also makes other types of loans to consumers and provides real estate and vehicle fleet financing for commercial customers. Al Manar conducts its financial services activities in accordance with Islamic Shari'a principles and is regulated and supervised by the Central Bank of Kuwait and the Capital Markets Authority.