By mid February, Bahrain’s Gulf Finance House (GFH) will have learnt whether the banks that were willing to lend it $300m in late 2006 are still feeling as generous.
The Bahraini bank is due to repay the debt on 10 February but it wants an extra six months to repay $100m of the loan, because it is having to cope with large losses and declining asset prices.
The bank had been one of the most successful at generating profits, particularly from the real estate sector, during the boom. Its troubles today are symbolic of how the downturn in the property and banking sectors continues to cause problems around the region.
In the first nine months of 2009, GFH made a loss of $121m. Even if it gains the six-month extension on the final $100m of its loan, it will need to make quick progress on selling assets and finding more sources of revenue if it wants to turn its business around.
In October 2009, the bank sold part of its stake in Qinvest, a Qatari investment bank, raising $50m. Further sales are being considered but, given the environment, it may be difficult to secure a decent price for its assets.
Generating revenue will be no easier. The bank says it might launch two new infrastructure projects during the year, but the income it made from advisory work during the boom years will be tough to replace.
Its situation has not been helped by a series of downgrades to its credit rating this year and the loss of its chief executive officer, Ahmed Fahour, in December, who spent only five months in the position.
What the bank needs now is stability and to take a more conservative approach in order to rebuild its business slowly and steadily. In this, also, it is emblematic of what needs to happen in the banking sector across the region.