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Mon 27 Jun 2011 06:59 PM

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Bahrain banks set to see lending rise, says official

Central bank exec director says banks have weathered storm, with lending to grow in H2

Bahrain banks set to see lending rise, says official
The HQ of Bahrains central bank. (Getty Images)

Bahrain's banks have weathered the political turmoil rocking the Gulf Arab oil producer since March, and lending is expected to rise this year, a Bahraini central bank official said on Monday.

Bahrain was thrown into turmoil in February when citizens, mostly majority Shi'ites, took to the streets demanding democratic reforms in the Sunni-ruled state. The protests were put down in March in a government crackdown that called in troops from neighbouring Gulf Arab countries.

"The expectation is that probably by the second half of the year we will see more (lending) growth," Khalid Hamad, an executive director at Bahrain's central bank, told reporters on the sidelines of a finance conference in Saudi Arabia.

The crackdown scared away investors, tourists and forced the cancellation of a Formula 1 grand prix. Bahrain, a US ally and home to the US Navy's Fifth Fleet, has competed as a business centre with Qatar, Abu Dhabi and Dubai.

Analysts polled by Reuters this month slashed their 2011 growth outlook for Bahrain for the second quarter in a row, to 2.7 percent from 3.4 percent, making it the worst performer in the region.

King Hamad bin Isa al-Khalifa has set July 1 as the start of a national dialogue to discuss reforms.

"I feel that by looking at the data and the government initiative in Bahrain, given that this year is an outstanding year in terms of the size of the budget ... That will definitely give a push to more growth," central bank official Hamad said.

In May, Bahrain approved a 44 percent rise in government spending in 2011-2012 compared to the previous two-year period.

Gulf Arab oil producers launched a $20 billion aid package for Bahrain and Oman in March, both of which have faced anti-government protests, to generate jobs and upgrade their housing and infrastructure over 10 years.

Asked if lending in 2011 would exceed the previous year, Hamad said: "Most probably yes, because the government budget is larger than ever."

Private sector credit was up by 9 percent year-on-year at the end of March, central bank data showed, compared to a 1.5 percent decrease in the same period a year ago.

Hamad said that despite a period of unrest in the country that saw the closure of major roads, banks were still able to operate with little impact on their operations.

"During the week from March 13-17, there was not a single payment that was missed through our system," he said.

In May, ratings agency Moody's downgraded Bahrain's credit rating by one notch to Baa1 and assigned a negative outlook, citing lingering political tension.

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