Moody’s affirms ABK A2/Prime-1 ratings – Outlook on all long-term ratings stable
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KUWAIT CITY, Nov 27: Moody’s Investors Service, (“Moody’s”) has today affirmed all ratings on Al Ahli Bank of Kuwait K.S.C.P. (ABK), including the bank’s deposit ratings (A2/Prime-1), baseline credit assessment (BCA) and adjusted BCA (baa3), and counterparty risk assessment (A1(cr)/Prime-1(cr)). The outlook on all long-term ratings is stable.
Today’s action follows the conclusion of ABK’s deal with Greece’s Piraeus Bank SA to acquire 98.5 percent of Piraeus Bank Egypt (PBE). The list of ratings affected by today’s rating action is at the end of this press release.
Ratings rationale
The affirmation of the ratings reflects Moody’s view that the downside risks arising from ABK’s expansion into the more volatile Egyptian market, and the impact of the acquisition (cost of USD150 million) on the bank’s capitalisation and liquidity metrics, are at the moment largely offset by ABK’s still strong post-acquisition capital and liquidity buffers.
Moody’s recognises that in conjunction with some integration challenges, this transaction (ABK’s first major cross-border acquisition) will expose the bank’s creditworthiness to the volatile Egyptian market.
Egypt’s Macro Profile is ‘Very Weak’ compared to ‘Strong-’ for Kuwait.
We estimate that Egypt will account for around 6 percent-7 percent of ABK’s gross loans by end-2015, while PBE had exposure as of end-2014 to Egyptian government securities (sovereign rated B3 stable), which, post-acquisition is equivalent to an estimated 11 percent of ABK’s tangible common equity.
Nevertheless, on balance, Moody’s believes that these risks will be offset by ABK’s still strong post-acquisition capital and liquidity buffers. The rating agency expects that ABK will have a tangible common equity to risk-weighted assets ratio of around 18 percent by end-2015 (which includes the impact of the acquisition of PBE), still well above the 14 percent average for other rated banks in Kuwait. In addition, post-acquisition, ABK will maintain sizeable liquidity buffers on its balance sheet, with liquid assets to total assets of around 30 percent by end-2015. The rating agency also expects that the transaction will not have an immediate negative impact on ABK’s other financial metrics, given that the non-performing loan (NPL) ratio of the bank will remain at around 2.5 percent post- acquisition, while NPL coverage at PBE is also above 100 percent.
Moreover, despite future asset-quality concerns arising from the volatile operating environment, Moody’s recognises that, if successfully managed, ABK can leverage Egypt’s large and growing market and economic links between Kuwait and Egypt, such as trade flows between the two countries, as well as a large number of Egyptian expats working in Kuwait. The transaction will allow ABK to diversify its assets and earnings that have so far been concentrated within the Persian Gulf region.
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