Bahrain’s commercial banks are set for slower asset growth in 2016 and 2017, as a deteriorating macroeconomic environment weighs on credit demand and liquidity, according to BMI Research, a unit of ratings agency Fitch.
Its report said that despite the challenges facing the kingdom, geographic diversification and the resilience of non-oil sectors will ensure that commercial banks stay afloat.
It said the Bahraini commercial banking sector will experience slower growth over the next two years, with weakening domestic deposits. Asset growth slowed to 2.7 percent year-on-year in 2015, following average growth of 6 percent over 2010-2014.
“We forecast total assets in the commercial banking sector to grow by 2.3 percent in 2016 and 4.2 percent in 2017 before picking up in the following years, as oil prices gradually recover,” BMI said.
Oil accounts for around 20 percent of Bahrain’s total GDP – which is low compared with its peers from the Gulf Cooperation Council (GCC) – but accounted for more than 90 percent of government revenues before the slump in oil prices.
The Bahraini government had to cut on spending to adapt to the low oil price environment, negatively impacting consumer and business confidence and resulting in weaker credit demand, BMI said in the report.
It added that liquidity conditions in Bahrain’s banking sector have also toughened over the past year and a half while recent credit downgrades will intensify pressure on the banking sector.
In May, Moody’s downgraded four Bahraini banks, including BBK and National Bank of Bahrain and in June, Fitch was the latest ratings agency to downgrade Bahrain’s sovereign rating to non-investment grade (BB+), following similar moves by Moody’s and Standard & Poor’s.
Despite the slowdown in lending activity incurred by low oil prices, BMI said it expects earnings at the country’s largest banks to be resilient, amid strategies to diversify geographically and the robust performance of industries key to commercial banks’ earnings.
It said credit quality across the Bahraini banking sector will deteriorate slightly over the coming years, as the slump in oil prices puts pressure on some sectors.
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