KUWAIT CITY, Sept 16, (KUNA): The international credit rating agency, Moody’s, has reaffirmed the National Bank of Kuwait’s (NBK) strong standing in the local market and the success of its regional expansion strategy, almost a year after the global economic crisis cast its shadows on the local economy. In a recent report, of which KUNA obtained a copy, Moody’s revealed a number of factors that supported NBK’s strong standing, including its locally-influential trade mark; cautious regional expansion that offered opportunities for greater expansion in the future, as well as opportunities for improving its trade mark and diversification; good strategic planning; and a stable executive team supported by a well-experienced board of directors and a strong financial basis. Other factors noted in Moody’s report included NBK’s strong capitalization that increased its ability to absorb any possible losses, which boosted its ranking at present. The bank’s financial strength was unlikely to come under pressure in the near future.

Moody’s noted that what set NBK apart was that it was not disclosed to any faltering local investment companies — with very limited exposure to Saad and Qusaibi groups — and that despite being one of the biggest local banks with one of the largest network of branches abroad, its conservative credit management and its knowledgeable risk management helped the bank avoid such problems.
The credit rating agency also said that NBK was one of the largest financial institutions in Kuwait, and was the largest commercial bank with assets at KD 12.114 billion ($41.9 billion) as of June 2009, with holdings accounting for 30 percent of those of the whole Kuwaiti banking system.
NBK accounts for 34 percent of the market’s conventional loans and 29 percent of all deposits; if Islamic banks are factored in, then the percentages would stand at 29 and 22 respectively.
On the retail sector, Moody’s report said that NBK accounted for 36 percent of the market’s consumption loans with the exception of financing companies (32 percent in total), as well as 35 percent of all salary deposit accounts in Kuwait. NBK also accounts for 40 percent of all guarantor letters for commercial financing.

As for banking investment, NBK developed asset management operations to compete with 100 Kuwaiti investment companies and foreign banks, in order to obtain a share in managing private and institutional resources.
Although this line of work was dealt a strong blow by the global economic crisis in late 2008, and the fact that positive performance in this area was not expected this year, Moody’s said this activity was not a major one for NBK and thus would not affect its performance this year, nor would it have a noticeable long-term impact, unlike the case for many Kuwaiti investment companies.
The Moody’s report said NBK was likely to continue to dominate the local market. However, Kuwait’s market remains a small one and its oil-dependent economy offered little growth opportunities, which was why NBK began its strategic regional expansion operations in recent years. This could offer the bank some growth opportunities in the medium-term, given the success that its branches in Egypt, Qatar and Bahrain had made.

Also:
LONDON: Moody’s Investors Service has Wednesday assigned a first-time insurance financial strength rating (IFSR) of A3 to Al-Ain Ahlia Insurance Co, which is based in Abu Dhabi in the United Arab Emirates. The rating outlook is stable.
Al-Ain Ahlia was created in 1975 and is one of the principal insurance companies operating in the Emirate of Abu Dhabi. Al-Ain Ahlia offers a wide range of non-life insurance lines to companies and individuals in Abu Dhabi, with a particular focus on providing property, engineering, oil & gas and motor insurance to the major state-sponsored and private commercial enterprises.
In 2008, Al-Ain Ahlia recorded gross written premia of AED696 million ($189 million) and had total assets of AED2,179 million ($593 million) as at 31st December 2008. The company ranks in the top 5 in the UAE insurance market when ranked by gross premium. Al-Ain Ahlia was established by the government of Abu Dhabi, and remains partially state-owned with a 19.7% stake held by the Abu Dhabi Investment Council. As a consequence, Moody’s assesses Al-Ain Ahlia as a Government-Related Issuer (GRI).
In accordance with Moody’s rating methodology for GRIs, the rating of Al-Ain Ahlia reflects a combination of the following inputs: (i) a baseline credit assessment of 7 (on a scale of 1 to 21, where 1 represents the lowest credit risk); (ii) 100% dependence, reflecting the company’s operating and financial proximity to the government of Abu Dhabi; and (iii) 20% support, reflecting the importance of Al-Ain Ahlia in its capacity as an insurer of government projects offset by the limited state ownership of 19.7%.

“The main standalone strength of Al-Ain Ahlia is its strong business position within the State of Abu Dhabi,” says Paul Oates, Vice President — Senior Analyst in Moody’s EMEA Insurance Group. It has a tangible advantage over other insurers in that it seeks business stemming from major projects through its technical expertise, boasts a robust capital position and a reinsurance programme, benefits from state ownership as well as a long history of specialisation in engineering and energy risks.
“Al-Ain Ahlia’s profitability is good, although Moody’s recognizes that there is some volatility of business line performance due to the company’s limited diversification,” explains Mr Oates. However, these strengths are offset by the high-risk investment strategy in comparison to Western insurers. The company has large investments in local equity and property markets, which have shown some considerable volatility.
Nevertheless, Al-Ain Ahlia is strongly capitalised with a gross underwriting leverage of 1.1x in 2008. If all equities and properties were deducted from capital, the gross underwriting leverage would still remain at a more than satisfactory 2.5x. In addition, Moody’s notes the limited diversification, with most exposures being limited to Abu Dhabi, and the inherent risk of large single exposures through a mostly corporate book.

Moody’s says that upward rating pressure for Al-Ain Ahlia may evolve over time from (1) a significant reduction in investment risk, either through a wider spread of asset classes and/or geographic exposure; and (2) through sustained profitable growth and international expansion reducing concentration risks.
Conversely, Moody’s says that the rating may experience downward pressure from (1) a significant deterioration in Abu Dhabi’s economic environment; (2) reduced underwriting profitability with combined ratios of above 100% for several years; and (3) a reduced capital position with gross underwriting leverage rising above 2.5x

The following rating was assigned:
Al-Ain Ahlia Insurance Co — A3 insurance financial strength rating, stable outlook.
The principal methodology used in rating Al-Ain Ahlia was Moody’s Global Rating Methodology for Property and Casualty Insurers, published in July 2008 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody’s website.
Based in Abu Dhabi in the UAE, Al-Ain Ahlia recorded as of H1 2009 net income of AED48.2 million and unrealised gains on investments such that total equity fell to AED1,093 million from AED1,154 million despite a dividend payment of AED 150mn. Gross Written Premium of AED354 million was fairly static compared to H1 2008 when the premium amounted to AED358 million.