Fitch downgrades Gulf Bank's individual rating but affirms stable outlook

Dubai: Fitch Ratings has downgraded Kuwait-based Gulf Bank's individual rating to 'F' from 'D'.

The individual rating is removed from Rating Watch Negative. Fitch has simultaneously affirmed Gulf Bank'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 the bank's individual rating reflects Fitch's view that the bank would have defaulted if it had not received external support. A serious lapse in Gulf Bank's risk management has resulted in potentially large losses arising from the bank's derivative transactions, Fitch said in a statement.

Additional capital

In addition to measures taken by the Kuwaiti auth-orities, Fitch believes the bank requires additional capital from existing shareholders and/or external sources to cover these losses and maintain capitalisation at adequate levels.

Gulf Bank said on October 26 that derivative losses occurred due to the impact of the recent fall of the euro against the US dollar on certain customer-driven derivative transactions.

These transactions exposed the bank to considerable counterparty risk and the resulting losses are likely to have a negative impact on the bank's franchise, funding and pros-pects.

Fitch will closely monitor further disclosures on the extent of the losses, the structure of the transactions that caused the losses and the measures taken to strengthen capitalisation and internal controls.