Bahrain’s banking sector is expected to remain sluggish into 2018 as challenging economic conditions limit growth, a report has warned.
Low oil prices and fiscal austerity measures are expected to weigh on business and consumer sentiment in Bahrain in the coming quarters, limiting credit demand and limiting asset growth in the sector, according to the study from BMI Research.
The Fitch Group company has forecast asset growth in Bahrain’s banking sector to remain “subdued” at 3 percent for 2017, and 3.7 percent for 2018.
It added that asset quality “is likely to experience modest deterioration” – although Bahrain’s non-performing loans ratio is still reasonably low at around 5.5 percent of total loans as of the end of 2016, the report added.
Loan growth is also set to remain sluggish in Bahrain as hydrocarbon prices prompt the government to implement fiscal consolidation measures. Bahrain has a lower oil price per barrel breakeven price than its GCC neighbours.
Meanwhile, the government’s “weak” fiscal position is increasingly limiting its capacity to provide support to local banks, BMI said.
The country’s expanding infrastructure sector – forecast by BMI to grow by around 6 percent on average annually in 2017-18 – will create new lending opportunities for banks and remain a relative “bright spot”, the report said.
However, it warned that these opportunities are likely to be insufficient to fully counterbalance the effects of austerity measures.
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