Moody's has downgraded Gulf Investment Corporation's (GIC) bank financial strength rating (BFSR) to D- from D.

The D- rating now maps to a Baseline Credit Assessment (BCA) of 13, down from 12 (on a scale of 1 to 21, where 1 reflects the lowest level of risk).

Moody's has also confirmed the Baa2 long-term deposit and senior unsecured debt ratings, and Prime-2 short-term deposit rating of GIC.

The outlook on all ratings is negative.

This rating action concludes Moody's rating review initiated earlier this year in view of turbulent capital market conditions and the potential impact on GIC's solvency and franchise.

GIC's BCA of 13 reflects the company's narrow scope of operations, its lack of franchise, the potentially elevated risk of its operations and the multiple setbacks to its performance suffered since the beginning of the sub-prime crisis in mid-2007 and throughout the global financial crisis in 2008 (as a consequence of the nature of its operations and its possibly ill-timed entry into asset classes that suffered during the past two years).

It also reflects the fact that, despite its recapitalisation and the improvement in market conditions, GIC's performance in 2009 remains poor, and the company continues to be exposed to potential market weakness.

More positively, the BFSR also reflects the company's high liquidity, very good operating efficiencies and much improved capitalisation, with its leverage declining as at end-H1 2009 to more realistic levels of 5.3 times compared to 10.9 times at YE2008 (the company voluntarily calculates its Basel II CAR at 16.9 per cent as at end-H1 2009, up from 8.7 per cent at YE2008). Management reports that capitalisation and leverage ratios continued to improve in Q3 2009.

The negative outlook on GIC's BFSR reflects the fact that the company is currently in the process of restructuring and re-evaluating its direction (and the narrow scope of its operations).

Moody's previous rating action on GIC was on February 16, 2009, when its BCA was lowered to 12 from 11, its deposit ratings were downgraded to Baa2/Prime-2 from A3/Prime-1, and its senior unsecured debt rating was lowered to Baa2 from A3.

Headquartered in Kuwait City, GIC reported total assets of $5.64 billion as of June 2009.-TradeArabia News Service