'Although the bank reported exceptional results for 2005, most gains were generated by its exposure to GCC equity markets and regional private equity participations,' says Moody's. 'Although GIC's aggregate GCC equity exposures at end-2005 accounted for 11.9 per cent of the bank's total assets, they generated $143.3 million of operating income plus $47.2 million - 100 per cent - of non-operating income. This coupled with a severe compression of net interest margins highlights the bank's intensifying market risk profile.'

GIC's outlook downgrade is the first action by rating agencies following the severe stock market corrections since the beginning of the year. Moody's also issued a report in mid-May warning about the potential dangers for the region's banks of high exposure to equities and real estate (MEED 19:5:06).