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Moody's Investors Service has placed on review for downgrade the long-term deposit ratings of National Bank of Kuwait (NBK) and Kuwait Finance House (KFH).
NBK’s long-term deposit rating is currently Aa3, while KFH’s long term-deposit rating is A1.
Moody’s said the rating action has been prompted by the potential weakening of the Kuwaiti government's capacity to provide support in case of need.
“The banks' long-term ratings and assessments are the closest to the government's current ratings among the Kuwaiti banks and are particularly sensitive to a scenario of more than one notch downgrade of the Kuwaiti government's rating,” Moody’s said.
Kuwait’s rating on review
On March 30, the ratings agency placed Kuwait’s Aa2 long-term issuer rating on review for downgrade.
The agency cited the significant decline in government revenues due to a sharp fall in oil prices, combined with weak governance that could have very significant implications for Kuwait's capacity to finance its borrowing needs in the next few years.
Oil price decline
In March, the Organisation of Petroleum Exporting Countries (OPEC) failed to strike a deal with its allies, led by Russia, causing oil prices to decline by 30 percent.
Brent Crude oil prices traded near the $23 per barrel level at the end of March, down from the $51 per barrel level recorded at the beginning of the month.
A depressed global oil demand arising from the coronavirus outbreak alongside a sharp increase in the supply of crude oil has led Moody's to revise down its oil price assumptions for 2020 and 2021 to an average of $43 per barrel and $53 per barrel respectively.
Economies around the world have been impacted by the rapidly spreading coronavirus, which has infected more than 900,000 people worldwide.
Kuwait has implemented several measures to stem the spread of the virus, including a nationwide curfew, halting all international flights, and suspending schools and universities until August.
The country announced on Wednesday measures to boost the economy against the coronavirus pandemic, including soft long-term loans from local banks and loan repayment delays for companies affected.
(Reporting by Gerard Aoun; editing by Cleofe Maceda)
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