Fitch rates Burgan Bank at A+

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Fitch Ratings said today that it has assigned Kuwait-based Burgan Bank a long-term issuer default rating (IDR) of A+ with a stable outlook and a short-term IDR of F1.

“Burgan’s long and short-term IDRs are support-driven,” Fitch said. “The bank’s support rating (SR) and support rating floor (SRF) reflect an extremely high probability of support from the Kuwaiti authorities, to the bank and all Kuwaiti banks, if needed.”

Fitch said Burgan has tight capital ratios given its loan concentrations, rapid growth in challenging regional markets and equity-related investments.

“Despite measures to strengthen regulatory capital, via an AT1 issue, sale of treasury shares, a rights issue and asset sales, the bank’s Basel III capital ratios have limited buffer over regulatory minimums,” Fitch said. “Pressure on capital comes from a combination of rapid growth, fairly high dividend payments and the translation effect of its foreign currency-denominated assets. Nevertheless, Fitch believes Burgan has good access to capital, particularly from its parent Kuwait Projects Company (KIPCO), a leading regional investment company owned by members of Kuwait’s ruling family.”

KIPCO has a 42 per cent stake in Burgan as well as an indirect stake of 17 per cent via United Gulf Bank of Bahrain.

Some 43 per cent of Burgan’s assets are held outside the Kuwait through subsidiaries in Turkey, Jordan, Algeria, Iraq and Tunisia. The bank has a strong domestic franchise, with a market share of 11 per cent, and a focus on corporate banking. Burgan has high related-party lending, which is reflected in Fitch’s assessment on corporate governance and a constraint on the rating.

“Management has been stable, has strong international experience and is well qualified to deal with the risks incurred by the subsidiaries,” Fitch said. “The strategy is clear and closely aligned with that of KIPCO, but a successful implementation will take time to materialise, in Fitch’s view, given that some of Burgan’s regional markets are now more volatile.”

Fitch said Burgan’s non-performing loan ratio is among the highest in Kuwait but is expected to improve in 2016. Reserve coverage is more than 100 per cent. Asset quality is also constrained by direct holdings in Kuwaiti corporates and stakes in private equity funds, which