DUBAI: Ratings agency Moody’s on Tuesday downgraded Kuwait’s Gulf Bank, saying the lender’s high exposure to the real estate and construction sectors weighed on its balance sheet.
Moody’s downgraded Gulf Bank’s financial strength rating to D- from D+, signaling deficient financial fundamentals and that the ratings agency believes outside support of the bank may be required.
The downgrade comes as credit conditions in the Gulf Arab region worsen following the bursting of the Dubai real estate bubble, corporate debt defaults and debt restructuring at state-owned Dubai World.
“The sharp rise in credit charges, viewed in the context of the Central Bank of Kuwait’s progressive minimum provisioning requirement, point toward a continued deterioration in asset quality, while credit conditions in Kuwait remained weak during Q4 2009,” said Moody’s analyst Stathis Kyriakides.
“Moody’s understands that the impaired credits include some of the bank’s largest customers and relate to both domestic and regional high-profile corporate defaults,” he said, adding that a decline in asset quality would continue in 2010.
Gulf Bank said the downgrade was outdated and didn’t take account of its improving position.
“We don’t agree with their evaluation because they are basing their evaluation on the third quarter of 2009,” said Fawzy Al-Thunayan, spokesman and general manager for board affairs. “Their report should have been issued last year when we had problems and not this year when we are improving the situation of the bank.”
Gulf Bank, which is Kuwait’s sixth-largest lender by market value and 16 percent owned by the state’s sovereign wealth fund, was rescued by the central bank in 2008 after derivatives losses.
Profits in the first nine months of 2009 were erased by provisions for bad loans; the bank has yet to report the full year.
“We expect that in 2010 we will turn to the positive and the bank’s situation will be better than now,” Thunayan said.
In November, Kuwait’s central bank governor disclosed that Gulf Bank had $98 million worth of non cash facilities with indebted state-owned conglomerate Dubai World, due in June this year.
The lender’s third-quarter net profit plunged 98 percent, and the bank said at the time that bad loans would continue to weigh on profits through mid-2010.
“On the positive side, the participation of the Kuwait Investment Authority in Gulf Bank’s capital since January 2009 is evidence of the very high probability of systemic support available to the bank,” Kyriakides said. Shares in Gulf Bank ended flat on Tuesday.
