Bahrain banking assets decline

10 October 2011

Civil unrest in the country weighs on banking system

Assets in Bahrain’s banking system have declined by 5.9 per cent during the past year, as unrest in the country weighs on sentiment within lenders.

The latest figures published by the Central Bank of Bahrain (CBB), show that the total assets for retail banks and wholesale banks in the country were down in August, compared to the same period a year ago.

The figures show that retail banks in Bahrain have reported a 1.3 per cent rise in assets since the end of January, just before unrest broke out on 14 February that brought the country to standstill earlier in the year.

Assets within the country’s wholesale banks have fallen by 14.5 per cent since the beginning of the year. The CBB says this is partly due to ordinary moves by banks in the location that they book assets, rather than a shift away from Bahrain. The decline in assets held by wholesale banks is a disappointing move for Bahrain, which has built its reputation as a regional offshore banking hub. By the end of August, assets in the wholesale banks had fallen to $131.4bn, after a recent peak of $156.7bn in December 2010.

Bahrain wholesale banking assets
 $ bn
Source: Central Bank of Bahrain

Deposits in the retail banks were up by 10.5 per cent in August, compared to the same period last year. Since peaking in March, they have subsequently fallen by 2.6 per cent.

The civil unrest has been the latest challenge to Bahrain’s claim of being the region’s finance hub, coupled with the ascendancy of Dubai and the development of the Dubai International Financial Centre (DIFC).

Recent figures from the Bahrain Informatics Organisation showed that GDP growth in the second quarter of 2011 was just 0.8 per cent, compared to 1.8 per cent in the first quarter of the year. The latest figure is a significant decline on 2010, when the Bahrain economy was growing at 4.8 per cent in the second quarter.

Bahrain is currently planning to launch a $1bn Islamic bond (sukuk) issue, the proceeds of which are expected to be used to fund new infrastructure projects as part of the government’s drive to stimulate the economy. The US’ Citigroup, France’s BNP Paribas, and the UK’s Standard Chartered were appointed in late September to run the issue for the CBB, which will issue the bond on behalf of the government.

Restoring confidence in the banking sector may be more difficult than kick-starting the economy. As the latest figures show, banks are getting nervous about Bahrain. Although most foreign lenders are keen to show they are still committed to Bahrain, if there is little work they will begin to focus more on other markets in the region.

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