Kuwait Finance House Bahrain – Ratings Affirmed

(MENAFN- Capital Intelligence Ltd) 27 August 2026

Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Kuwait Finance House B.S.C. (KFHB or the Bank) at ‘BBB+’ and ‘A2’, respectively. The Outlook for the LT FCR has been affirmed at Stable. At the same time, KFHB’s Bank Standalone Rating (BSR) has been affirmed at ‘bbb-’ with a Stable Outlook. The Extraordinary Support Level (ESL) remains High.

KFHB’s LT FCR is set two notches above the BSR to reflect the high likelihood of extraordinary support from the parent Kuwait Finance House K.S.C.P. (KFH) (rated ‘A+’/‘A1’/Stable), whose key shareholders are Kuwaiti government entities (38.4%), including the Kuwait Investment Authority. KFH has D-SIB status as the largest bank in Kuwait in terms of consolidated assets. The Kuwaiti government (rated ‘A+’/‘A1’/Stable) also has a solid record of providing assistance to its banks in the event of need, and has the very strong financial capacity to provide support. KFH is the second-largest Islamic bank globally.

KFHB’s FCRs are not capped by Bahrain’s sovereign credit ratings (‘B’/‘B’/Stable) or by CI’s assessment of sovereign interference risk (Moderate, implying a foreign currency limit of ‘B+’ for domestic/onshore banks). This is partially because a significant share of KFHB’s assets and earnings are derived from outside Bahrain, including from highly rated GCC countries and other investment-grade sovereigns. Although the balance sheet exhibits high geographic exposure to the GCC region, this is a function of the Bank’s chosen GCC-based business model. Total funded and unfunded exposures in Bahrain declined to 32% of total in 2025, from 37% in 2024, reflecting the management’s strategy to diversify risk assets away from Bahrain.

The Bank’s BSR is derived from a Core Financial Strength (CFS) rating of ‘bbb+’ and an adjusted Operating Environment Risk Anchor (OPERA) of ‘bb’, indicating moderate risk. The ratings continue to be underpinned by the benefits of strong and supportive ownership, a geographically diversified balance sheet and revenue streams, and sound financing asset quality, including more than full financing-loss reserve (FLR) coverage. The Bank’s other credit strengths are comfortable liquidity, good capital ratios and high capital flexibility, and a track record of sound profitability at both the operating and net levels. KFHB’s ratings are constrained by the challenging operating environments and elevated geopolitical risk across the region, and the single name concentrations seen in customer deposits, financings and investment securities. These risk factors are common to almost all GCC banks. The moderately high level of Stage 2 financings and relatively high exposure to the real estate sector, including residential mortgages, are also a credit challenge.

KFHB is the largest retail bank in terms of consolidated assets in Bahrain. Being the second largest bank subsidiary of KFH, the Bank’s business model and strategy are now a subset of the wider KFH Group. All policies (subject to local regulations) have been aligned with those of its Kuwaiti parent. Under KFH ownership, KFHB continues to follow a prudent credit and investment policy, with risk management practices subject to regular reviews by KFH Group. A well-executed business strategy has enabled the Bank to build a resilient business model focused on corporate banking, treasury and investments, and to a much lesser extent, retail and private banking.

The consistently sound financing asset quality is a credit strength. Despite the prevailing high geopolitical and credit risk, a conservative financing policy, together with effective remedial measures, has generally restricted the migration of past due financings to the Stage 3 category. However, the larger proportion of financings in higher risk economies (post-Ahli United Bank Kuwait, or AUBK, deconsolidation in 2024), alongside ongoing high financing concentrations, has raised the risk profile of the financing portfolio. The newly classified stage 3 financings in 2025 mainly relate to corporate clients in Bahrain and reflect the challenging conditions in the country. The planned financing expansion in prime GCC markets (KSA, UAE and Qatar) is expected to diversify risk assets away from Bahrain.

While Stage 2 financings, a leading indicator of future asset quality risks, continue to decline, we consider downside risks to financing asset quality to be moderately high in the absence of a resolution to the military conflict. Stage 2 financings are equivalent to a still moderately high 9.5% of gross financings and also exhibit a rather high degree of financing customer concentration. Despite a decline, KFHB has continually maintained strong FLR cover for NPFs, without incurring an excessively high cost of credit or the depletion of a large proportion of operating profit. FLRs provide a cushion for possible greater than expected losses on Stage 3 financings, or potential new impaired accounts. Looking ahead, CI expects risk absorption capacity to continue to be supported by good operating profitability and a sound capital buffer.

The comfortable liquidity (including sizeable HQLA holdings) and funding profile support the ratings. Liquidity is underpinned by customer deposit funding (mainly from unrestricted investment account holders, or URIAs), term financing against sukuk held, and effective access to the capital markets. Investment-grade sukuk continue to dominate HQLA, and these securities complement cash and balances with central banks. Although the fixed income portfolio (FIP) is reasonably diversified across economic sectors, there is some concentration in regard to issuer and geography. Some 63% of investment securities are investment grade, and a significant share relates to non-Bahrain GCC sovereigns. The FIP constitutes an important liquidity reserve, as the sukuk constitute acceptable security for collateralised term financing.

Both the LCR and NSFR are at good levels, and we expect this to remain the case in the near term. Although the concentrated customer deposit base is a credit challenge, a significant portion relates to GCC governments and GREs, and these have historically been stable. The concentration risk is partially mitigated by a good pool of liquid assets. CI would view positively any meaningful growth in the share of retail deposits given their inherent diversification benefits. Liquidity at the self-funded foreign subsidiaries is also good, sharply reducing any likelihood of needing parent funding support.

KFH parentage has considerably strengthened KFHB’s capital flexibility. This is a key factor supporting the rating. Since KFH acquisition, the Bank has maintained even better leverage and capital ratios than had been the case in prior years. We consider this important, given the increased proportion of exposure to higher risk operating environments (Bahrain and Egypt) post AUBK deconsolidation. Since conversion, regulatory capital adequacy ratios benefit from the preferential regulatory risk-weight for URIA-funded assets. The capital base provides a buffer against any unforeseen losses, as well as ample scope for business expansion. Internal capital generation is satisfactory despite a generous dividend policy. The bulk of regulatory capital continues to comprise high-quality CET1 funds. Management is focused on retaining an optimal capital mix subject to market conditions. All subsidiaries are well-capitalised.

Notwithstanding some degree of fluctuation in recent periods, we anticipate KFHB’s good operating and net profitability to persist in the short to medium term. Earnings strength is a key rating driver. Resilient operating income generation capacity, combined with good cost control and low cost of risk, continues to underpin bottom-line profitability. Although operating income is skewed towards net financing income (NFI), in common with other GCC banks, revenue streams benefit from reasonable geographical diversification, alongside multiple business segments and a favourable net financing margin (NFM). The overall quality of earnings is sound, despite some fluctuation driven in part by investment securities and FX trading income. ROAA was boosted in 2025 by a windfall gain on sale of KFH equities. We envisage cost efficiency to remain strong going forward.

Rating Outlook

The Stable Outlook indicates that the ratings are unlikely to change over the next 12 months. This reflects our view that KFHB’s credit risk profile will more than likely remain at the current level, notwithstanding potential economic headwinds and ongoing geopolitical tensions.

Rating Dynamics: Upside Scenario

We do not expect a change in the LT FCR since the rating is already significantly above Bahrain’s sovereign rating. A significant improvement in the adjusted OPERA could raise the BSR, but we do not consider this to be likely in the short term.

Rating Dynamics: Downside Scenario

While not our current expectation, the Bank’s LT FCR could be lowered in the unlikely event that KFH’s creditworthiness deteriorates markedly. The BSR could also be downgraded if there was a significant weakening in KFHB’s currently sound financial metrics and the adjusted OPERA.

Contact

Primary Analyst: Morris Helal, Senior Credit Analyst; E-mail: ...
Secondary Analyst and Committee Chairperson: Rory Keelan, Senior Credit Analyst

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