Five Kuwaiti banks, including top Islamic lender Kuwait Finance House (KFH), face possible downgrades because of exposure to debts of troubled investment firms, ratings agency Standard & Poor's said.

S&P also cut its outlook for National Bank of Kuwait to negative from stable, the ratings agency said in a statement on Monday, citing a worsening economic environment in which the Gulf state's biggest bank by assets operated.

S&P said it put the "A-" long-term counterpart credit rating on KFH and Commercial Bank of Kuwait, which posted losses in the fourth quarter, under creditwatch negative. This means it may downgrade those lenders.

It confirmed the "A-2" short-term counterpart credit rating for both lenders and also NBK's "A+/A-1" long- and short-term credit ratings.

The agency also put the "BBB+/A-2" long- and short-term ratings on Al Ahli Bank of Kuwait and Burgan Bank under creditwatch negative after having already placed "A-/A-2" rating of Gulf Bank under the same grade after Kuwait had to rescue it following losses with derivatives.

"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," S&P said in a statement.

Approving and implementing a government rescue plan "would influence the stand-alone credit profile of these banks", S&P added.

Earlier this month, Kuwait approved a $5.1 billion economic stimulus package including state guarantees on fresh loans to investment firms. Parliament is due to debate it next month. - Reuters