The agency put the ratings for Kuwait Finance House, Commercial Bank of Kuwait, Al Ahli Bank of Kuwait and Burgan Bank on negative outlook, and said Gulf Bank remains on a negative outlook, where it has been since October 2008.

"The various rating actions reflect our expectation that the exposure of these five banks to the distressed local investment companies sector is likely to materially affect their stand-alone credit profile, in the context of an already weakening operating environment," says Standard & Poor's credit analyst Emmanuel Volland.

S&P believes that many investment companies in Kuwait have large real estate and stock market exposures, and are facing liquidity and possible insolvency issues.

It adds that the agency thinks many of these are already in discussions with creditors to restructure their debts.