Gulf Bank ratings action

This results from the fact that the Bank has incurred significant but as yet unquantified losses on derivatives transactions.

The Chairman and another board member have resigned and a controller appointed by the Central Bank of Kuwait ('CBK') to oversee the Bank's Treasury activities.

At present both the Long Term and Short Term Foreign Currency ratings of A+ / A1 remain unchanged.

This decision is based on the statements issued by the CBK that it will guarantee both local and
international deposits placed with the Bank.

Furthermore the Government, through the Ministry of Finance, has indicated that it will, if necessary, take an equity stake in the Bank so as to ensure its financial stability.

In a further move to reinforce confidence in the Kuwaiti banking system generally, today the Kuwaiti Parliament has approved a law submitted by the Government to guarantee all bank deposits placed with Kuwaiti banks.

The circumstances that gave rise to the derivatives losses (which were made public on 26 October 2008) involved certain unspecified customers being 'unable or unwilling' to meet their obligations arising from losses incurred from recent unfavourable movements in the USD / EUR exchange rate.

As a result Gulf Bank absorbed the losses and has stated that it will take all necessary actions to recover amounts due to it from these customers.

Gulf Bank is Kuwait's second largest conventional commercial bank.

It had total assets of KWD5.19bn and total equity of KWD490.2 m as of 30 September 2008.

Developments at Gulf Bank will be kept under close review.

Further rating action is possible once the scope and scale of the Bank's losses, together with details of any stabilisation package that may be necessary, is fully known.