Moody’s Upgrades Burgan Bank’s Ratings

November 2006: Moody's Investors Service has upgraded the financial strength rating (FSR) of Kuwait’s Burgan Bank from D to D+ with a stable outlook. By the same action, Moody’s has also upgraded the bank's foreign currency deposit ratings from A2 to A1 with a stable outlook.

Moody’s decision to upgrade Burgan Bank’s foreign currency deposit rating follows the recent similar action on Kuwait's long-term foreign currency bank deposit ceiling and concludes the review for upgrade of the bank’s foreign currency deposit rating. The A1 long-term foreign currency deposit rating reflects both the bank’s intrinsic financial strength, as well as its systemic importance to the domestic banking system. Moody’s believes that Burgan Bank would be highly likely to receive support from the Kuwaiti government in the unlikely event of need, resulting in a deposit rating that is substantially higher than would normally be attributed to a D+ rated institution in the absence of such support.

In upgrading the bank’s FSR from D to D+, Moody’s recognizes the consistent improvement in the bank’s financial fundamentals over the past reporting periods since the arrival of the new management team, and our expectation that these improvements will be largely maintained. Specific credit improvements include the bank’s improved asset quality, underscored by its falling levels of non-performing loans (NPLs) and improved provisioning coverage of NPLs, as well as substantially lower levels of related-party loans relative to previous years. Furthermore, the management team that has been in place since mid-2004 has enhanced the bank’s risk management processes and improved its corporate governance structure, with the result that the bank now benefits from significantly improved corporate governance, risk management and best practices and procedures.

Additionally, Burgan Bank was recertified and is still the only bank in the GCC with ISO 9001:2000 certification in all banking businesses. With a Basel II capital adequacy ratio at 19.5%, it is strongly capitalized both by local as well as international standards.

Moody’s notes that in addition to the improvements mentioned above, Burgan Bank’s credit metrics remain relatively strong overall, highlighted by its healthy levels of capitalization, good cost efficiency indicators and high levels of balance sheet liquidity. At the same time, the bank’s operating and bottom-line profitability, while healthy and gradually improving, remain relatively low when compared to other similarly rated institutions, particularly within the GCC. Continued improvement in the bank’s profitability relative to similarly rated GCC banks, which at the same time does not have a significant negative impact on the bank’s asset quality, liquidity or capitalization, will be an important factor affecting any potential future upgrade of its FSR.

As of the 30th September 2006, Burgan Bank announced an increase in net profit of 48%, reaching KD 43 million for the first nine months, as compared to the same period last year. This strong activity was confirmed by an increase of 61% in net profit for the quarter. This resulted in strong earnings per share, which went up by 52.2% at 53.9 fils. Return on equity reached 25.8%, a 44% jump over the achievement last year for the same period of 17.9%.

Headquartered in Safat, Kuwait, Burgan Bank reported total assets of KWD2.091 billion (USD7.233 billion) as of 30 June 2006.