S&P may downgrade Kuwaiti banks for exposure to distressed assets

Standard & Poor's Ratings Services, an international ratings agency, yesterday placed five Kuwaiti banks on "creditwatch negative" for a possible downgrade after the institutions were exposed to the distressed local investment sector.

The agency placed its "A-" long-term counterparty credit ratings on Kuwait Finance House and Commercial Bank of Kuwait on creditwatch with negative implications. At the same time, the "A-2" short-term counterparty credit ratings on these banks were affirmed.

S&P placed its "BBB+/A-2" long- and short-term counterparty credit ratings on Al Ahli Bank of Kuwait and Burgan Bank on creditwatch with negative implications.

The "A-/A-2" long- and short-term counterparty credit ratings on Gulf Bank remain on creditwatch with negative implications, where it had been placed on October 27, 2008.

Emmanuel Volland, Standard & Poor's credit analyst, said: "The various rating actions reflect our expectation that the exposure of these five banks to the distressed local investment companies sector is expected to materially affect their standalone credit profile, in the context of an already weakening operating environment. We understand that the government is currently reviewing a support package to the investment companies that would have a significant impact if approved and executed, and would influence the stand-alone credit profile of these banks.

"We believe a large number of investment companies in Kuwait, largely active in the real estate and stock markets, are facing major liquidity, and perhaps solvency, problems and have started discussions with some of their creditors to restructure their debt obligations."

To resolve the creditwatch placement, Standard & Poor's will analyse the individual banks' detailed exposures to the investment companies (on a gross and net basis) and assess the expected impact on their stand-alone credit profile.

Volland said the performance of the local economy will also be factored into the consideration before revising the Kuwaiti banks' ratings.

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