Fitch Ratings has downgraded Kuwait Finance House's (KFH) Viability Rating to 'bb+' from 'bbb-', while at the same time affirming the bank's Long-term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook. A full list of ratings is at the end of this comment.
The downgrade of KFH's Viability Rating reflects the bank's weak asset quality ratios, the resulting high impairment charges that continue to impact profitability, and capitalisation that is lower than some peers despite significant sector concentrations in its financing book. The Viability Rating also considers KFH's dominant franchise in Kuwait, strong funding profile and acceptable liquidity. Upside potential for KFH's Viability Rating would require a significant improvement in asset quality, as well as improved capitalisation given the large financing portfolio sector concentrations. Downside risk could arise from further deterioration in the bank's risk indicators.
KFH's IDRs and Support Ratings reflect Fitch's view that there is an extremely high probability that the bank would receive support from the Kuwaiti authorities, if required. This view is based on Kuwait's strong history of supporting domestic banks, KFH's government-related shareholders and its systemic importance. A change in the IDRs would result from any changes in the ability or willingness of the Kuwaiti authorities to support KFH. Fitch does not view this as likely at present.
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