The bond’s rating is supported by the lender’s sound capital adequacy, the recent rights issue and improved loan asset quality including strong loan-loss reserve cover for non-performing loans.
CI Ratings has affirmed its ‘BBB’ rating for Burgan Bank’s KWD 100 million subordinated bond (Basel III compliant), maintaining a stable outlook.
In a statement, the rating agency stated that the terms and conditions applying to the issue include a ‘non-viability clause’, which allows the Central Bank of Kuwait (CBK) – at its sole discretion – to require the bond to be written off in its entirety.
The specific features of the bond issue including its subordination, together with CI Ratings’ view on how the CBK is expected to resolve a distressed bank -- the rating agency assigned rating of this subordinated bond is set one notch below the lender’s financial strength rating of BBB+.
The rating is also supported by the bank’s comfortable liquidity underpinned by customer deposit funding as well as good access to the capital markets.
However, the rating is constrained by the subordinated status of the bond, the bank’s high exposure to non-investment grade sovereigns through operating subsidiary banks and by high customer concentrations in deposits.
Additionally, the rating is also constrained by Burgan Bank’s considerable exposure to related parties and the challenging operating environment including elevated credit risk.