Moody's downgrades rating for troubled Gulf Bank

Moody's Investors Service has downgraded troubled Gulf Bank's bank financial strength rating (BFSR) to C- from C and its long-term local and foreign currency deposit ratings to A1 from Aa3.

The ratings remain on review for possible further downgrade, Moody's added. The ratings were originally placed on review on October 28 following Gulf Bank's announcement that it had incurred potentially sizeable losses.

Although the bank has not yet clarified the extent and circumstances of these losses, the downgrade reflects Moody's view that the bank's previous rating is no longer sustainable.

The as-yet-undisclosed losses relate to the bank's exposures to complex foreign exchange derivative instruments marketed to a very small number of its customers, reportedly for hedging purposes.

Stathis Kyriakides, lead analyst at Moody's for the bank, said: "The announcement of potentially material losses triggered a small run on the bank, which prompted the central bank to extend a blanket guarantee on all customer deposits at banks in Kuwait and to provide Gulf Bank with liquidity support.

"Although the flight of customer deposits appears to have been halted, recent events may have a longer-term impact on the bank's franchise.

"These events have brought to light weaknesses in the bank's controls and risk management practices and have raised questions regarding its capacity to identify and manage risks."

Moody's move follows the decision by ratings agency Fitch to downgrade the bank on November 7.

Fitch cut the bank's rating to "F" from "D" as it would have defaulted had it not received emergency support, the agency said in a statement.

Gulf Bank is one of the largest retail banks in the country, behind National Bank of Kuwait and Kuwait Finance House. It reported total assets of $19.2 billion as of September.

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