Real estate exposure and a slowdown in new investment banking deals continue to weigh on the outlook for banks in Bahrain, according to a new report from ratings agency Moody’s Investors Service.

The report says that the local real estate market remains weak. Coupled with problems at investment banks as they try to change their business models and cope with the slowdown in deal flow, the local banks will face tough times.

Moody’s says that the severity and timing of losses resulting from real estate exposure is still uncertain. As a result it has rated the outlook for the Bahrain banking sector as negative.

The ratings agency also said that systemic banking risk is an issue for Bahraini banks, but that the “regulatory authorities have shown that they are able to contain this risk.”

George Chrysaphinis, banking analyst at Moody’s, says, “There is recognition that the wholesale banking category, which also includes investment banks, carries more risk. But that possible bank failures can be isolated because wholesale banks do not form part of the domestic payments system. In this regard it should be noted that the Bahraini authorities have so far not had to provide any material assistance to the retail banking sector.”