Moody's rating agency downgraded on Wednesday three Kuwaiti banks, citing weakening credit conditions, as the country's banking sector grapples with the fallout from the financial crisis.

The agency downgraded Gulf Bank financial strength rating to D+ from C- and foreign currency deposit rating to A3 from A1, saying the bank still faces challenges after major derivatives losses last year which forced a government bailout.

Moody's placed the bank's ratings on review for further possible downgrade due to exposure to loans default, the troubles of local investment firms and real estate sector.

Gulf Bank made a net loss of 9.1 million dinars in the second quarter after the bank raised first-half provisions for loans to defaulting Saudi Arabia borrowers.

Moody's downgraded the financial strength rating for the National Bank of Kuwait, the country's largest, on the back of weakening credit conditions, citing exposure to sectors where it has "material industry and single-party exposure".

Moody's has also downgraded Burgan Bank's foreign currency rating to A2 from A1, and financial strength rating to D+ from C-, saying cut reflects Kuwait's weakening credit conditions and poor stock exchange performance.

It also said the bank has elevated exposure to real estate, construction, investment companies and loans for purchasing securities.

Several major investment firms such as Global Investment House and Islamic investment firm Investment Dar have defaulted on most of their loans. - Reuters