OREANDA-NEWS. Fitch Ratings has assigned Kuwait-based Warba Bank (Warba) a Long-Term Issuer Default Rating (IDR) of 'A+' with a Stable Outlook and a Short-Term IDR of 'F1'. A full list of rating actions is available at the end of this rating action commentary.

KEY RATING DRIVERS

IDRs, Support Rating and Support Rating Floor

Warba's Long - and Short-Term IDRs, Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's expectation of an extremely high probability of support from the Kuwaiti authorities in case of need.

Warba's Long-Term IDR of 'A+' is in line with its SRF, which considers the ability and willingness of the authorities to provide extraordinary support. Kuwait's strong ability to provide support is reflected in its Long-Term IDRs of 'AA'/Stable. The authorities' willingness to provide support factors in demonstrated support for the banking system as well as Warba's close links to the state and its ownership by a number of Kuwaiti government-related entities (including the Kuwait Investment Authority; KIA), which collectively hold 32.5% in the bank.

Fitch believes there is an extremely high probability that all rated Kuwaiti banks that require support would receive it, irrespective of franchise, ownership and support history, and therefore Warba's SRF and Long-Term IDR are in line with those of most other Fitch-rated Kuwaiti banks and are at the Kuwaiti bank's domestic systemically important bank (D-SIB) SRF of 'A+'.

Warba's Short-Term IDR is 'F1' as Fitch makes a differentiation between the support-driven short-term ratings of the banks and the sovereign at this rating level (Kuwait's Short-Term IDR is 'F1+').

Viability Rating (VR)

Warba's company profile has a high influence on its VR given the bank's early stage of growth and evolving franchise and business model. As a result, Warba generates modest earnings and profitability, which are key rating weaknesses. In Fitch's view, Warba has a higher risk appetite than peers, reflecting its sensitivity to market risk from international investments. The VR also reflects rapid asset growth, albeit consistent with the bank's strategy to build a diverse and viable franchise.

We believe the bank has good risk management and underwriting standards, underpinned by strong regulatory oversight. Asset quality metrics are sound, with Warba reporting a very low impaired financing ratio and high reserve coverage. Asset quality is, however, tempered by a few instances of restructured financing, large concentrations in financing (by name and industry) and high exposure to investment risk.

Capital ratios are very strong. However, Fitch views capitalisation as only adequate in light of Warba's business model risks, asset concentrations, fast growth, low internal capital generation and small absolute equity base. We nevertheless recognise that the bank has good access to new capital given the financial strength of its key shareholder, KIA.

Warba is primarily funded by customer deposits, including large deposits from government-related entities, which remain supportive. Its Fitch-calculated financing/deposits ratio is increasing, with financing growth outpacing deposit growth. The volume and mix of customer deposits is expected to improve as the retail franchise expands. The bank remains a net interbank borrower. Liquidity risk is mitigated by a large international/regional Sukuk portfolio and good access to shareholder deposits.

RATING SENSITIVITIES

IDRs, SR and SRF

Warba's IDRs, SR and SRF are sensitive to a change in Fitch's assumptions on the Kuwaiti authorities' propensity or ability to provide timely support to the bank. At present, Fitch considers the likelihood of any change to be small.

VR

Warba's VR could be upgraded with a stronger company profile and franchise, as well as a sustained improvement in earnings and profitability. The VR could be downgraded if capital ratios or asset quality weaken materially or if the bank's strategy proves unsuccessful.

The rating actions are as follows:

Long-Term IDR assigned at 'A+'; Outlook Stable

Short-Term IDR assigned at 'F1'

Viability Rating assigned at 'b+'

Support Rating assigned at '1'

Support Rating Floor assigned at 'A+'