PARIS, May 24: Standard & Poor’s Ratings Services revised its outlook on Kuwait-based Gulf Bank to stable from negative. At the same time, Standard & Poor’s affirmed its ‘BBB-/A-3’ long- and short-term counterparty credit ratings on the bank.
The outlook revision reflects our view that Gulf Bank’s financial profile and performance have stabilized. Management’s efforts have, in our opinion, proven successful so far, notably thanks to active provisioning, the gradual restoration of net interest margins, the clean-up of some nonperforming loans (NPLs), and good cost control. Furthermore, we see the bank’s sound capitalization and adequate funding profile as providing additional layers of comfort.
With total consolidated assets of $17.5 billion as of March 31, 2011, Gulf Bank operates essentially in Kuwait. The ratings on Gulf Bank reflect our view of its strong commercial position as the second-largest conventional bank in Kuwait, adequate funding profile, and sound capitalization. These positive factors are offset by what we view as a still uncertain economic recovery, which could trigger a further downward drift in asset quality and profitability owing to the bank’s still large single-name and sector concentration in its lending book.
The stable outlook reflects our belief that Gulf Bank has succeeded in stabilizing its financial profile and that it will retain a conservative strategy. We could lower our ratings on the bank if we perceive that asset quality or earnings capacity is weakening due to the still uncertain economic environment, thereby negatively affecting the bank’s financial profile, or if the bank’s capitalization or liquidity deteriorates substantially. All else being equal, an upgrade would be possible if we saw a marked improvement in the bank’s financial profile, including further reduction in lending book concentration, higher provisioning of NPLs, and stronger earnings capacity.