Bahrain banks ‘ready to face global headwinds’

03/09/2015 08:31 AST

Bahrain’s banks have strong liquidity and capital buffers that would enable them to tide over global headwinds due to continuing low oil price and low growth expectations, experts from ratings agency Moody’s Investors Service said yesterday.

The panel of experts that included the financial institutions group associate managing director Jean-Francois Tremblay said the outlook for the country’s banking system had been changed to negative from stable, reflecting the view that a slowdown in economic growth, resulting from the impact of lower oil prices, will weigh on the banks’ funding and profitability over the coming 12 to18 months.

Nevertheless, Mr Tremblay said the agency also considers that the banks’ strong liquidity and capital buffers will continue to provide financial flexibility to adapt to these conditions.

He said Moody’s expects slower economic growth of 2.7 per cent for the kingdom this year (from 4.5pc last year), owing to the impact of lower oil prices and associated lower government revenues and spending, which will dampen operating conditions and weigh modestly on banks’ funding and profitability.

At the same time, the banking system’s credit profile will remain closely linked to the weakening fiscal position of the government, as direct holdings of government securities and loans, which currently represent over two times the banks’ equity, are likely to increase further, said the expert.

However, financial assistance from other Gulf countries and fairly resilient growth expected this year for Bahrain’s relatively diversified non-oil economy will help soften the impact of lower oil prices and moderate the risk of any severe deterioration in the banks’ performances.

In this context, Moody’s forecasts a modest increase in the formation of new non-performing loans, although reported NPL ratios should remain broadly stable as a result of banks’ ongoing initiatives to recover and write-off legacy problem loans.

The rating agency also notes that Bahrain’s banks will maintain strong liquidity and capital buffers, which will provide them with financial flexibility to adapt to the impact of lower oil prices.

The panel was speaking to the media at the Bahrain Bourse after a workshop for public and private sector entities.

Gulf Daily News