Moody’s assigns Baa3 (hyb) rating to Additional Tier 1 securities of NBK Tier 1 Limited

Limassol, February 16, 2021 — Moody’s Investors Service (“Moody’s”) has today assigned a Baa3 (hyb) rating to the upcoming issuance of the perpetual non-cumulative Additional Tier 1 (AT1) capital securities by NBK Tier 1 Limited, a wholly-owned subsidiary of National Bank of Kuwait S.A.K.P. (“NBK”, long-term bank deposits A1 stable, Baseline Credit Assessment (BCA) a3, Adjusted BCA a3).

NBK Tier 1 Limited is a special-purpose vehicle established for the sole purpose of (1) issuing the AT1 securities; and (2) using the proceeds to finance a subordinated loan to NBK. The guarantee provided by NBK constitutes direct, unconditional, subordinated obligations of NBK.

As such, the Baa3 (hyb) rating assigned to the securities is based on NBK’s creditworthiness and is placed three notches below the bank’s a3 Adjusted BCA, in accordance with Moody’s standard notching guidance for contractual non-viability preferred securities with optional non-cumulative coupon suspension.

RATINGS RATIONALE

The positioning of NBK Tier 1 Limited’s Baa3 (hyb) rating at three notches below NBK’s a3 BCA and Adjusted BCA, takes into consideration Moody’s assessment of the probability of impairment associated with mandatory and/or discretionary coupon suspension on a non-cumulative basis, and the contractual principal write-down feature in combination with the AT1 securities subordinated claim in liquidation.

The AT1 securities are contractual non-viability preferred securities. In liquidation, they rank senior only to junior obligations, including ordinary shares and common equity Tier 1 capital. Coupons are cancelled on a non-cumulative basis at NBK’s discretion, and on a mandatory basis subject to availability of distributable funds, breach of applicable regulatory capital requirement and regulatory discretion. However, a dividend stopper applies in case of interest cancellation.

The principal amount of AT1 securities will be written down permanently if (1) NBK is instructed to do so by the Central Bank of Kuwait on the grounds of non-viability; or (2) an immediate injection of capital (or equivalent support) is required without which NBK would become non-viable. The principal write-down can be either partial or full.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The rating of these securities will move in line with NBK’s Adjusted BCA.

NBK’s standalone BCA could face upward pressure following a sustained improvement in the operating conditions for banks in Kuwait. The BCA could also be upgraded if the bank (1) materially enhances its regional and global franchise, and develops cross-border synergies boosting profitability without materially increasing risks; and (2) reduces balance-sheet concentrations while maintaining strong asset quality and capitalisation.

NBK’s ratings could face downward pressure if there is a significant deterioration in the domestic operating conditions in Kuwait, as captured in the Macro Profile for the country. Asset-quality deterioration, beyond the bank’s historical through-the-cycle performance, arising either from its regional exposures or from the weakening credit profile of its large domestic customers, or a material deterioration in the bank’s capitalisation, profitability and liquidity because of intrinsic factors would also exert downward rating pressure.

The lowering of Moody’s support assumptions or further weakening of government’s capacity to provide support could also exert downward pressure on the bank’s ratings. Supported ratings that are closer to the government’s own ratings or benefit from a high degree of support, such as NBK’s deposit and senior unsecured ratings, are particularly sensitive to these changes.

Moody’s would also reconsider the Baa3 (hyb) rating level if the probability of a coupon suspension increased.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The local market analyst for this rating is Nitish Bhojnagarwala, +971 (423) 795-63.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alexios Philippides
Vice President – Senior Analyst
Financial Institutions Group
Moody’s Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Sean Marion
MD – Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody’s Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454