Fitch Ratings has affirmed Ahli United Bank K.S.C.P.'s (AUBK) Long-Term Issuer Default Rating (IDR) at 'A' with Stable Outlook.

Fitch has also maintained AUBK's 'bbb-' Viability Rating (VR) on Rating Watch Negative (RWN).

Key Rating Drivers

AUBK's IDRs reflect potential support from the Kuwaiti authorities, as reflected in its Government Support Rating (GSR) of 'a'. The Stable Outlook on AUBK's Long-Term IDR reflects that on the Kuwaiti sovereign rating (AA-/Stable).

The RWN on the bank's VR reflects our expectation that on completion of the legal merger between AUBK and Kuwait Finance House (K.S.C.P.) (KFH; A/Stable/bb+), AUBK's VR will likely be equalised with that of KFH (bb+), before it is withdrawn. The 'bbb-' VR is one notch above the 'bb+' implied VR due to its business profile.

Fitch believes that the intrinsic creditworthiness of the merged entity will directly reflect that of KFH. For the same reasons, Fitch has maintained the negative outlook on AUBK's operating environment and the positive outlook on funding and liquidity, and revised the outlook on asset quality to stable from negative.

Government Support Rating of 'a': The Kuwaiti authorities have a strong ability and willingness to provide support to domestic banks, irrespective of the banks' size, franchise, funding and level of government ownership. This view considers the state's record of supporting domestic banks and its willingness to maintain market confidence and stability given high contagion risk among domestic banks.

Stable Operating Environment: Fitch expects the Kuwaiti operating environment to remain stable, with forecast real GDP growth of 3.6% in 2024 and real non-oil GDP growth of 3.1%. In the absence of a public debt law, high oil prices and extremely strong external assets will continue to support government spending on wages and investments, and maintain business confidence. Fitch expects the sector's credit growth to be modest at 3%-4% in 2024, hindered by high interest rates and moderate real GDP growth.

Merger With KFH: On 31 July 2023, KFH reached an initial agreement on the merger by combination with AUBK, whereby KFH is the merging entity and AUBK is the merged entity. On 16 October 2023, the Capital Market Authority (CMA) approved the merger through a share swap. Fitch expects the merger to be completed in February 2024, subject to regulatory approvals.

Concentrated Financing Portfolio: AUBK's risk appetite is heightened by higher-than-average financing concentration risk, although this is common across Kuwaiti banks and Fitch believes this is largely unavoidable given the narrow nature of the domestic economy.

Low Stage 3 Loans Ratio: AUBK's Stage 2 (end-3Q23: 4.6%) and Stage 3 (1.9%) financing ratios are sound and stable. Its Stage 3 loans generation ratio is negligible. AUBK's reserve coverage of gross financing strengthened to 3.7% at end-3Q23 (end-2022: 3.3%), which is lower than the sector average but comfortable by global industry standards.

Improving but Subdued Profitability: AUBK's operating profit increased to 1.3% of risk weighted assets (RWAs) at end-3Q23 (end-2022: 1.0%) as lower impairment charges and a contraction in RWAs offset the bank's declining net financing margin. Nevertheless, profitability metrics remain below their pre-pandemic levels.

Adequate Capitalisation: AUBK's common equity Tier 1 (CET1) capital ratio (end-3Q23: 12.3%) is below peers' but remains stable and adequate for the bank's risk profile and above regulatory requirements. As an Islamic bank, AUBK benefits from 'the alpha factor' (a 50% reduction in RWAs calculation for financing funded by loss-absorbing deposits), albeit limited to around a 10bp uplift to the bank's common equity Tier 1 (CET1) ratio.

Stable Funding and Liquidity: AUBK's reliance on wholesale deposits is higher than most peers' and leads to high deposit concentration but liquidity risk is contained. Its gross financing/deposits ratio fell to 92% at end-3Q23 (end-2021: 101%) due to slower financing growth in recent years. High-quality liquid assets covered a good 20% of customer deposits at end-3Q23.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

AUBK's VR will likely be downgraded and subsequently withdrawn on the completion of the merger with KFH.

A downgrade of AUBK's Long-Term IDR would require a downgrade of the GSR. The latter would likely stem from a weaker ability to support, reflected in a Kuwaiti sovereign downgrade, which is not our base case considering the Stable Outlook on the sovereign rating. A weaker propensity of the Kuwaiti authorities to support AUBK would also lead to negative rating action, but this is unlikely in Fitch's view, given their strong record of supporting domestic banks.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

An upgrade of AUBK's VR is unlikely given the RWN.

An upgrade of AUBK's Long-Term IDR could come from an upgrade of its GSR. The latter would likely stem from a stronger ability to support, reflected in a Kuwaiti sovereign upgrade. However, this is unlikely in the near term given the high GSR level.


AUBK's Long-Term IDR (xgs) is at the level of its VR. AUBK's Short-Term IDR (xgs) is mapped to its Long-Term IDR (xgs).

The 'F1' Short-Term IDR is the lower of two options mapping to an 'A' Long-Term IDR because a significant part of Kuwaiti banks' funding is related to the government, and distress for AUBK would likely come when the sovereign itself is experiencing some form of stress.


AUBK's Long-Term IDR (xgs) would mirror changes to its VR.

AUBK's Short-Term IDR and Short-Term IDR (xgs) are sensitive to changes in its Long-Term IDR and Long-Term IDR (xgs), respectively.


The operating environment score of 'bbb' is below the 'a' category implied score due to the following adjustment reasons: size and structure of the economy (negative) and financial market development (negative).

The business profile score of 'bbb-' is above the 'bb' category implied score due to the following adjustment reason: group benefits and risks (positive).

The asset quality score of 'bb+' is below the 'bbb' category implied score due to the following adjustment reason: concentrations (negative).


The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

AUBK's IDRs are linked to the Kuwaiti sovereign ratings.

ESG Considerations

As an Islamic bank, AUBK needs to ensure compliance of its entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations, reporting and sharia audit. This results in a Governance Structure relevance score of '4' for the bank, which has a negative impact on the bank's credit profile in combination with other factors.

In addition, Islamic banks have an ESG relevance score of '3' for Exposure to Social Impacts, above sector guidance for an ESG relevance score of '2' for comparable conventional banks, which reflects certain sharia limitations being embedded in Islamic banks' operations and obligations, although this only has a minimal credit impact on the entities.

Except for the matters discussed above, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit

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