Fitch downgrades Gulf Bank's individual to 'D'; on RWN; affirms long-term IDR at 'A+'

At the same time, Fitch has affirmed GB's Long-term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook, Short-term IDR at 'F1', Support rating at '1' and Support Rating Floor at 'A+'.

The downgrade of GB's Individual rating reflects a serious lapse in its risk management that has resulted in potentially large losses arising from the bank's derivative transactions. GB announced on 26 October 2008 that these losses occurred as a result of the significant recent decline of the EUR against the USD, with certain of its customers unwilling or unable to fulfil their obligations to cover their losses and, therefore, that these losses would be incurred by the bank. The downgrade also reflects the negative impact these losses could have on the bank's capital base, franchise and prospects.

The RWN on the Individual rating reflects uncertainty about the extent of losses and the likelihood that GB will require additional capital from existing shareholders and/or external sources to cover these losses. The RWN on the Individual rating will be resolved upon receiving further details on the extent of losses, the structure of the transactions that caused the losses, and the amount and source of additional capital necessary to maintain the bank's capitalisation at adequate levels.

GB's IDRs and Support rating reflect Fitch's view that there is an extremely high probability that the bank would receive financial support, if required, from the Kuwaiti authorities. This is based on the Kuwaiti authorities' strong history of supporting local banks, GB's importance to the local banking system and the Kuwaiti authorities' strong ability and propensity to maintain confidence in a relatively small banking system.

In the past, the authorities have supported the entire local banking system through two major systemic crises; the Souk Al-Manakh (informal stock market) collapse in 1982 and the Iraqi invasion in 1990. Currently there is limited downside risk to the Long-term IDR as it is at the Support Rating Floor.

GB is the second-largest commercial bank in Kuwait, with a market share of around 13.5% of domestic banking system assets at end-H108. The bank's core businesses are domestic retail and commercial banking and project-related international lending. The three largest shareholders owned approximately 64% of the bank at end-2007.