Fitch Ratings has affirmed Gulf Bank's ( GB ) Long-term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook and Viability Rating (VR) at 'b+'. A full list of rating actions is at the end of this release. Gulf Bank's (GB ) Long- and Short-Term IDRs, Support Rating and Support Rating Floor reflect Fitch's view of the extremely high probability of support from the Kuwaiti authorities, if needed. The Kuwaiti authorities have a long history of strong support for local banks, which has traditionally gone beyond that provided by most other governments in the region. While Fitch recognizes the improvements made by the bank's management since 2009, which include progress in strengthening the balance sheet and a greater focus on the bank's core business, the VR reflects legacy loan quality problems which are still a constraining factor. These loan quality issues will require time to work through, although Fitch's expectation is that improvements in both profitability and asset quality will continue. GB's IDRs, Support Rating and Support Rating Floor are sensitive to Fitch's view of the creditworthiness of the state of Kuwait, and of the Kuwaiti authorities' continuing propensity to support the banking system. For the VR, further upgrades would hinge on the continuance of positive trends in loan portfolio quality and impaired loan coverage, strengthening of capital along with the maintenance of a sound liquidity and funding profile. Any significant weakening of loan quality or capitalization could negatively affect the VR. Loan quality indicators continued to improve, but remain weak compared with the bank's peers. The impaired loan ratio reached 14.6% at end-2011 from its peak of 30% in 2009. The improvement continues to be largely on account of write-offs. Problems are concentrated in the real estate and financial institutions (investment companies) sectors. Reserve coverage of 44% at end-Q112 is low by domestic and regional standards, but impaired loans are collateralized. Capitalization is on the low side given the still sizeable volume of unreserved impaired loans compared with the bank's reported equity. GB's regulatory Tier 1 and Fitch core capital ratios were 13.6% and 14.7%, respectively, at end-Q112. GB continued to report modest but definite growth in core earnings - net interest and fee income - both in 2011 and in Q112, but impairment charges continued to depress overall results. Impairment charges are likely to remain high for the remainder of 2012 as the bank builds reserves to a comfortable level. GB's solid franchise, in addition to the relatively liquid market in which it operates, provides a stable funding base and funding is mainly from customer deposits. There is significant deposit concentration, although many of the largest deposits are relatively stable funds from government or public sector institutions. Liquidity is satisfactory. The bank holds about 28% of its balance sheet in very liquid assets: bank deposits (including balances with the Kuwaiti central bank) and Kuwaiti government securities. GB is the third-largest Kuwaiti bank by assets, accounting for around 11% of the system total at end-Q112. The bank is active in retail and corporate banking, trade finance and treasury services. It is listed on the Kuwaiti stock exchange; its main shareholders are a domestic trading group, which has around 27% of its shares, and the Kuwait Investment Authority (KIA), the bank's second-largest shareholder with a 16.1% stake. The rating actions are as follows: Long-term IDR affirmed at 'A+'; Stable Outlook Short-term IDR affirmed at 'F1' Viability Rating affirmed at 'b+' Support Rating affirmed at '1' Support Rating Floor affirmed at 'A+' Press Release
