Bahrain's banks get clean bill of health

Moody's raises its outlook for sector while International Monetary Fund also delivers upbeat verdict
Bahrain's banks get clean bill of health
(Photo for illustrative purposes only)
By Reuters
Mon 31 Mar 2014 06:39 PM

The International Monetary Fund has given Bahraini banks a clean bill of health, while rating agency Moody's raised its outlook for the sector, as banks in the kingdom emerge from a period of consolidation.

Bahrain has weathered the most recent bout of volatility in global financial markets, the IMF said last week after it concluded a consultation mission.

"The banking sector is in good health. The capitalisation of the banking system is high on average, around 18 percent for retail banks and above 22 percent for wholesale banks."

The Islamic retail banking segment has been tackling high non-performing loans but capital buffers remain adequate, the IMF added ahead of a formal report to be released in May.

On Monday, Moody's changed its outlook on Bahrain's banking system to stable from negative.

Moody's expects banks' capital metrics to remain broadly stable; they had an aggregate Tier 1 capital ratio of around 14.5 percent at the end of December, which Moody's said was enough to absorb losses under its scenario and stress-testing analyses.

Bahrain's central bank has been encouraging smaller lenders to merge to bolster institutions weakened by a local real estate crash and fall-out from the kingdom's political unrest in 2011, which has continued sporadically since then.

But despite the good news, the market has been left without a key source of industry data after the central bank stopped publishing its monthly statistical bulletin six months ago, giving no explanation.

Its statistical bulletin is one of the most detailed for any central bank in the Gulf region, with extensive data on money supply, mutual funds and aggregate bank balance sheets.

Contacted by Reuters, the central bank did not give a reason for the stoppage and merely pointed to its website, where the bulletin's latest edition can be found.

The last report, covering data for September, showed foreign assets held by Islamic banks plunged by 24 percent or $3.1 billion from the previous month - the single biggest drop since records became available.

In August, Islamic banks' total assets - both foreign and domestic combined - rose 3.1 percent from a year earlier. Because of the plunge in foreign holdings, total assets sank 10.3 percent from a year earlier in September.

It is unclear if the drop in foreign assets was the result of provisional data being used, late reporting by banks, or institutions offloading assets.

Bahrain-based Arcapita has been in the process of selling assets after it emerged from Chapter 11 bankruptcy protection last Sept. 17, but the sales are expected over an extended period of time.

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.