Despite the adverse financial climate, Burgan Bank has continued to grow its operating income, which was $438.9m at the end of 2008 and $271.4m at the end of June 2009. This half-year result puts it on track to post end-of-year income results at the same level or higher than in 2008

This growth is due to Burgan’s expansion strategy, a diversified balance sheet and the strong cost controls it has implemented since the onset of the downturn.

However, at the end of August, ratings agency Moody’s Investors Service announced it was downgrading Burgan’s financial strength rating to D+ from C-.

Moody’s says that its move reflects “weak-ening credit conditions in Kuwait over the past 12 months, the poor performance of the Kuwaiti Stock Exchange, despite a moderate recovery in the second quarter of 2009, coupled with Burgan’s concentrations to sectors that have experienced pressure over the past year”.

These sectors include commercial real estate, construction and investment companies.

Real estate and construction assets represented about 3.6 times the bank’s adjusted total equity at the end of March this year, while exposure to local investment companies stood at about 0.7 times adjusted total equity.

These exposures are considered the bank’s main sources of credit risk.

The sizeable level of provisioning undertaken by the bank is a sign that non-performing loans may increase in number, in turn impairing the bank’s asset quality.

Provisions for impairment of loans and advances stood at $97m for the six months to the end of June 2008, an increase of 583 per cent from $14.2m in the same period last year.

Like all financial institutions, Burgan is experiencing significant challenges to its operations as a result of the global turmoil.

However, it remains one of the leading banks in Kuwait and looks poised for continued strong growth, with the bank’s regional expansion helping it to establish a robust commercial banking franchise in the region.