The crisis in Kuwait’s banking sector deepened on Tuesday as the chairman of Gulf Bank resigned over derivatives losses and Moody’s warned it could downgrade the bank, the country’s second biggest lender.

Kutayba Al Ghanim replaced his brother Bassam Al Ghanim as chairman of Gulf Bank after depositors on Monday started to withdraw deposits from the stricken bank. It was the first known bank run in the region during the crisis and came despite the Kuwaiti central bank’s pledge to support the bank and guarantee all bank deposits in the country.

Moody’s Investors Service said it would review Gulf Bank’s Aa3 rating for a possible downgrade due to the flight of depositors, the potential loss to the bank, and the apparent lack of risk management at the institution.

Mr Ghanim is the first senior banker in the region to have resigned over losses since the financial crisis broke last year. Gulf Bank said on Sunday it had made an undisclosed loss on trading currency derivatives for a client, who subsequently refused to honour their commitments.

Other Kuwaiti bankers estimate the loss at up to $800m. The loss “raises questions as to whether the underlying risks assumed by customers, and by extension by the bank, were properly identified and managed,” Moody’s said in an emailed statement.

The run on deposits was reported to have been modest in absolute terms, but “represented a flight of retail customer funds that could have a longer-term impact on the bank’s business franchise,” according to the credit rating agency.

The losses on currency derivatives came after the euro declined against the dollar, according to Gulf Bank, which said it would cover the costs until it can work out an agreement with its clients. Gulf Bank reported total assets of KD5.19bn ($19.2bn) as of September.

The Al Ghanim brothers Bassam and Kutayba al Ghanim are the bank’s biggest shareholders, controlling nearly a third of the company’s stock through Alghanim Industries, a Kuwaiti conglomerate.

Trading in the bank’s shares has been halted until the central bank – which has appointed a supervisor to monitor the bank’s treasury management and monetary market activity – conducts an inquiry into the losses.

The Kuwaiti stock market slipped 2.1 per cent on Tuesday, taking its loss this year to 22.8 per cent, with fellow bank Kuwait Finance House dropping 4.3 per cent.

National Bank of Kuwait gained 4 per cent as many Kuwaitis deposited money withdrawn from Gulf Bank in the country’s biggest financial institution. Kuwait is one of the world’s biggest suppliers of oil and one of the richest countries in the Gulf, but became the third country in the region to move to prop up its banking sector.

Despite robust public finances and current account surpluses, signs are mounting that the Gulf is far from immune to the storm sweeping financial markets. Abu Dhabi Commercial Bank in the United Arab Emirates and Gulf International Bank and Arab Banking Corporation in Bahrain last year reported writedowns on US investments.

Few other institutions have admitted to subprime losses, but many have started to take mark-to-market losses on investment portfolios due to plunging regional and international equities. The MSCI Gulf index has lost nearly half its value this year.