IIRA Maintains Ratings of Kuveyt Turk Participation Bank
Islamic International Rating Agency (“IIRA”) has reaffirmed the ratings of Kuveyt Turk Participation Bank (“KTPB” or “the bank”) with foreign currency rating at ‘BBB- / A3’ (Triple B Minus / A Three) and local currency rating at ‘BBB / A3’ (Triple B / A Three) on the international scale.
At the same time, the national scale ratings have been reaffirmed at ‘AA(tr) / A1+(tr)’ (Double A / A One Plus) with a ‘Stable’ outlook. The ratings on KTPB continue to reflect its overall sound risk profile coupled with strong institutional support. While relative weakness in asset quality indicators is noted since our last review, these continue to compare favourably vis-à-vis the overall industry and the participation banking sector. IIRA’s assessment on KTPB encompasses sponsor support from its key shareholders that include Kuwait Finance House (“KFH”), Islamic Development Bank and other quasi-sovereign entities such as the General Directorate of Foundations – Turkey and Kuwait Public Institution for Social Security.
Established in 1989, KTPB is a dominant participation bank operating in the Republic of Turkey (“Turkey” or “the country”). Within the participation banking domain, the bank benefits from its widespread presence through its network of 391 domestic and overseas branches. With a still expanding branch footprint, IIRA expects the bank to grow at a stepped-up pace this year benefiting from government’s ongoing credit stimuli and improving macroeconomic environment in the country. As such, the bank is expected to maintain and even strengthen its market position over the next two years despite the entry of larger financial institutions in the participation banking domain in Turkey, thereby supporting the stable outlook. Over time, however, the participation banking sector is expected to become increasingly competitive as the larger commercial banks in the country foray into it.
IIRA has taken cognisance of the deterioration in the bank’s asset quality indicators observed since 2016. Although currently manageable with adequate provisioning levels, the higher past due but not impaired financings could likely lead to further increase in impairment this year, indicative of rising credit risk. While we expect the bank’s overall profitability to improve with business growth, it could be tempered by higher provisioning charges as a result.
Nonetheless, the bank’s internal capital generation is expected to support its business expansion and also reinforce capitalisation level thereby providing adequate headroom for loss absorption in the ordinary course of business. Further, the ratings derive strength from the bank’s strong liquidity profile and steadily growing retail funding.