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Fri 5 Dec 2008 07:34 AM

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Moody's mulls downgrade for four Kuwaiti banks

Concerns over real estate exposure leads investors service to put banks on review.

Moody's Investors Service is considering downgrading its rating on four Kuwaiti banks, it has revealed.

It has placed on review for possible downgrade the long-term deposit rating and bank financial strength rating (BFSR) of the National Bank of Kuwait, Commercial Bank of Kuwait, Al Ahli Bank and Bank of Kuwait and the Middle East.

These actions have been prompted by Moody's concerns over the banks' exposures to real estate (particularly commercial real estate) and the lending for purchasing securities.

The service said in addition to evidence indicating that demand in the Kuwaiti real estate market had weakened during the first 10 months of 2008, the steep decline of the local stock market between September and November could weigh further on real estate demand and has also caused significant problems for investment companies and tensions in the local financial market.

Stathis Kyriakides, lead analyst at Moody's for Kuwaiti banks, said: "Moody's is also concerned that the recently announced support mechanism for Kuwait's investment companies, which among other things calls on the country's banks to extend long-term secured funding to such companies, could have a material impact on the composition of banks' balance sheets."

He added that the recent political unrest in the Gulf state and the legal challenge to have the Kuwait Stock Exchange shut down amid its poor performance would do nothing to restore calm in the financial markets.

At the end of September 2008, National Bank of Kuwait had total assets of $46.1 billion; Commercial Bank of Kuwait had total assets of $16.2 billion; Al Ahli Bank had total assets of $11.3 billion and Bank of Kuwait and the Middle East had total assets of $8.2 billion.

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