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Wed 16 Feb 2011 10:26 PM

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Bahrain central bank official says unrest won't affect economy

Central bank sees 7 to 12 percent growth in retail banking this year, positive on outlook for banking sector

Bahrain central bank official says unrest won't affect economy
CENTRAL BANK: Bahrain has seen popular unrest this week however it would not hurt the economy says bank officials

Protests in Bahrain, which continued for a third day on Wednesday, will not
affect the Gulf state's economy or financial sector, a Bahraini central bank
official said.

Bahrain, a small non-OPEC oil producer, has seen popular unrest this week,
inspired by recent uprisings in Egypt and Tunisia, because of deep-rooted
discontent among its majority Shi'ite population with the ruling Sunni dynasty.

The protests, however, would not hurt the economy, Abdulrahman Mohammed al Baker,
executive director of financial institutions' supervision at Bahrain's central
bank, said.

"It's a democratic way of doing things. It has nothing to do with the financial
sector," he told reporters after a conference in the UAE capital.
"Investors are not worried."

The International Monetary Fund has forecast Bahrain's economy will grow 5
percent this year, up from an estimated 4 percent expansion last year.

Protesters in Bahrain poured into the state capital on Wednesday to mourn a
demonstrator killed in clashes with security forces.

Analysts said the Gulf Arab state, a regional financial and banking hub and
home to nearly $10bn in mutual funds, was facing risks but said they saw no
outflows yet.

Bahrain's debt insurance costs, however, hit fresh 18-month highs on
Wednesday and bankers said a planned $1bn Bahrain sovereign bond issue was likely
to be delayed while investors were jittery.

Baker was positive on the outlook for the banking sector.

"The overall situation is good for banks especially retail," he
said, adding that the retail banking market should grow by 7 to 12 percent this
year.

Bahraini retail banks such as Ahli United Bank weathered the global
financial crisis relatively well whereas investment companies such as Ithmaar and
Gulf Finance House were badly hit by a freeze in regional investments during
the crisis.

Last August, however, ratings agency Moody's said the outlook for Bahrain's
banking system remained negative as more losses loomed, mainly due to its
exposure to local and regional real estate.

Baker, asked whether the worst was over for Bahraini banks' exposure to
troubled Saudi Arabian groups Saad and Al Gosaibi, said: "It is still
under legal process, we need to see. Banks have provided for provisions."

Some Bahraini banks had links to troubled Saudi Arabian family conglomerates
Saad and Al Gosaibi and have set provisions aside for their exposure.

Baker also said that Bahrain has no plans to stop conventional banks from
providing Islamic banking.

"I think it is an added value and we will allow it," Baker said.

Qatar's central bank asked conventional lenders to close down their Islamic
operations this month amid worries of overlap between the two, in a surprise
move seen prompting other regions to follow suit.

Loans and deposits were growing at single digits at Bahraini banks, he said:
"It is very healthy it will continue in 2011."