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Wed 11 Feb 2009 10:08 PM

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Fresh capital not required for Bahrain banking system

Central bank governor says no immediate need to inject more money into banking system.

Bahrain's central bank governor stated on Wednesday there was no immediate need to inject additional capital into the nation's banking system and non-performing loans did not yet pose a risk to local banks.Like its neighbours, Bahrain has been striving to defrost credit markets, mainly by slashing interest rates.

In December the central bank reduced its key deposit and lending rates by 75 basis points to improve money market conditions.

"Banks are not awash with liquidity but are adequately capitalised to conduct their own business," Rasheed al-Maraj said at a news conference.

"So far we feel we don't need it," Maraj said when asked if there was need for Bahrain to inject liquidity into banks to help them cope with the global financial crisis.

Some of Bahrain's Gulf neighbours, including the United Arab Emirates, have launched funding facilities to help banks cope with the global financial crisis, which brought to an end an economic boom in the region.

The one-month Bahrain Interbank Offered Rate was 2.215 percent on Wednesday - down about 175 basis points since mid-October, when the global financial crisis worsened.

Maraj said that deposits at Bahraini banks have been stable over the past months and that banks continue to report solid profitability.

Those Bahraini banks that have already posted their fourth-quarter earnings reported lower profits or losses on provisions on their investment portfolios.

"We don't see any problem yet in the quality on the loan portfolio," he said.

"All our indications and data we have collected from banks say there is still growth in credit in Bahrain," Maraj said.

Bank loans to the private sector grew 7.6 percent in the fourth quarter, he said. He said, however, that small and medium sized companies do have problems accessing liquidity.

Economic growth in Bahrain would be "very slow" this year, Maraj added, declining to be more specific. (Reuters)

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