Standard & Poor's has announced it may lower its credit ratings on five Kuwaiti banks linked to local financial companies that have been hard hit by the global financial crisis. In the past few months, Kuwaiti investment companies have suffered more than others in the region, due to their reliance on international funding and investments in local property and stock markets that have withered.
Although large Kuwaiti banks are more protected from the effects of the crisis, some ratings agencies have been concerned that trouble among the investment companies could trigger losses. Global Investment House, one of the companies, recently defaulted on its debt. "The various rating actions reflect our expectation that the exposure of these five banks to the distressed local investment companies sector is likely to materially affect their stand-alone credit profile, in the context of an already weakening operating environment," said Emmanuel Volland, a credit analyst at S&P.
The agency put Kuwait Finance House, Commercial Bank of Kuwait, Al Ahli Bank of Kuwait and Burgan Bank "on CreditWatch with negative implications". Gulf Bank was placed on review for a possible downgrade in October, when it disclosed a US$1bn loss (Dh3.67bn) loss caused by soured foreign-exchange bets. "We believe that 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," Mr Volland said.
The Kuwaiti government has indicated it is reviewing ways to support ailing investment companies. S&P said such support would benefit the banks' ratings. It said it would reassess the status of the banks in the coming weeks. @Email:tpantin@thenational.ae