By Frederik Richter
Investment portfolios hardest hit as most Bahraini banks are exposed to Dubai real estate slump.
Profit at Bahraini banks are likely be affected by Dubai's debt woes due to provisions booked on their exposure and hits on their investment portfolios, an analyst and banking executive said on Tuesday.
Dubai said last week it would ask creditors of Dubai World and Nakheel to agree to a standstill on billions of dollars of debt, shocking international investors and bankers. Bahrain has established itself as a regional banking centre alongside Dubai, catering to investing the region's oil wealth abroad and mostly in regional private equity and real estate.
A large chunk of Dubai's debt is related to billions of investments in property it made before its real estate bubble burst late last year. "Banks in Bahrain are likely to have some sort of exposure to Dubai, so profitability will be affected depending on the specific exposure of each bank," said Suleman Soorani, a banking analyst at Bahrain-based SICO Investment Bank.
"The extent depends on the level of provisioning the central bank will require banks to book and which loans they'll have to book as NPLs (non-performing loans)," he said. The Central Bank of Bahrain (CBB) could not be reached for comment on Tuesday, a government holiday in Bahrain. The Bahrain Stock Exchange has been open for two days since Dubai's announcement last week, but trading has been light with only a few stocks being traded, while bourses elsewhere in the Gulf Arab region saw losses.
A treasurer at a Bahrain-based bank who spoke on condition of anonymity said most banks in Bahrain had exposures to Dubai through investments. "There is a reasonable volume of Dubai government bond holdings in the Bahraini banks," he said.
Most Bahraini banks have weathered the global financial crisis reasonably well as they shunned investments in toxic assets, but they have posted losses or lower profits in 2009 on bad loans and falling property valuations. The property exposure of Islamic banks in particular has raised concerns.
Islamic investment house
Gulf Finance House (GFH)
has said it is renegotiating terms of the Dubai Land real estate project, liabilities to which it put at $302 million at end-June. Soorani said he estimated
's net investment in the project at some $270 million.
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