UPDATE 1-Kuwait's Gulf Bank back to profitabiliy in Q1

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KUWAIT, May 13 (Reuters) - Kuwait's Gulf Bank (GBKK.KW) edged back into profitability with net earnings of 1.6 million dinars ($5.53 million) in the first quarter after it posted a loss in the fourth quarter last year.

Gulf Bank, rescued by the central bank last year after derivatives losses, posted a 95 percent drop in first-quarter net profit compared with the same quarter a year earlier, after booking provisions of 9 million dinars to weather a global financial crisis, it said on Wednesday.

It made net profit of 32.2 million dinars in the first quarter of 2008.

Gulf Bank, in which sovereign wealth fund Kuwait Investment Authority (KIA) owns a 16 percent stake, posted a fourth-quarter loss of 445.5 million dinars last year, due to losses on derivatives transactions. [ID:nLL398897]

"Although this level of profit represents a notable decline compared to the corresponding period of 2008, it also reflects the general economic conditions that continued to prevail during the first quarter of 2009," the bank said in a statement.

"This drop is also attributable to the reduction in the bank's investment activities," it added.

Last month the bank elected former KIA head Ali al-Bader as its new chairman as a part of a revamp ordered by the central bank.

Shareholders approved in December a rescue plan worked out by the central bank to raise 375 million dinars ($1.30 billion) in an emergency rights issue to cover derivatives losses of the same amount.

The bank now has "a solid foundation to meet the challenges and opportunities ahead" after the restructuring plan, it said in the statement.

Gulf Bank's troubles prompted the government last year to guarantee all deposits in Kuwaiti banks in a bid to restore confidence and calm fears that the sector's exposure to the global credit crisis ran deeper than first thought.

The bank's shares rose 1.19 percent on Wednesday before its results were reported. (Reporting by Rania El Gamal; Editing by Thomas Atkinsm and David Cowell)