Private sector credit growth in Bahrain slowed in November 2012, continuing the trend that has been under way since April 2012, as banks digest the rapid expansion in credit growth that followed the slowdown in early 2011 as political unrest brought the economy to a standstill.
The latest figures from the Central Bank of Bahrain show that credit growth to the private sector fell to 7.8 per cent in November, compared to the same period a year ago. That was down from 9.4 per cent the previous month.
Credit growth in early 2011 dropped to a low of just 2 per cent in April. In the first six months of 2011, credit to the private sector barely rose as a political uprising brought central Manama to a standstill and prompted a harsh crackdown on demonstrations, backed up by troops from Saudi Arabia.
The slowdown in credit growth came as Bahrain was just starting to recover from the impacts of the financial crisis, which caused lending to private firms to shrink through much of late 2009 and early 2010.
Credit growth rebounded quickly in mid-2011, and peaked at 1.2 per cent in April 2012, before starting to fall again. “New lending was minimal in the first half of 2011, but began to experience a sharp, sustained acceleration in the summer. Partly due to the rebound effect, year-on-year credit growth reached double digits in the first half of 2012,” according to a report by Bahrain’s Economic Development Board (EDB).
“The country’s retail banks are in robust health and have been working to remobilise their liquidity after a period of elevated risk aversion,” the EDB report adds. “Although the year-on-year increase in bank lending has slowed somewhat in recent months, it remains comfortable.”
Bahrain’s economy has reported stronger growth than many expected in the wake of the 2011 unrest, despite protests against the ruling Al-Khalifa family continuing to hit sentiment. Economic growth in the first nine months of 2012 was 4.4 per cent, according to the EDB, although the quarterly figures showed a consistent slowdown between each of the first three quarters of the year.
Despite this, “the recovery has clearly developed a strong forward momentum beyond the rebound effect seen in the first half of 2012,” says the EDB in its report.
The financial sector is a key part of Bahrain’s economy, particularly its efforts to diversify and create well-paid jobs. The finance sector employs about 14,000 people in Bahrain, including about 9,000 Bahrainis, and contributes almost 17 per cent of the country’s total gross domestic product (GDP).
Political instability, coupled with the financial crisis, has led to some international financial institutions quitting their operations in the country.