Bahrain’s economic development is on the right path and the overall health of economic and banking system remained resilient during the recent past, a top official at the Central Bank of Bahrain revealed on Friday.
Rasheed Al Maraj, the Governor Central Bank of Bahrain, during the first weekly Ramadhan meeting of the Bahrain Chamber of Commerce and Industry, said that all indicators support the soundness of the banking system.
Al Maraj said that the CBB would continue to work along with the all stakeholders to keep a close watch on the smooth running of the banking and financial system.
Al Maraj, who was joined by the Chairman BCCI Dr Esam A Fakhro and the President and Chief Executive of Albaraka Banking Group, Adnan Yousif, said that the lending capability of the banks would remain satisfactory despite some challenging environment in the regional markets.
Dr Esam Abdulla Fakhro, the BCCI Chairman highlighted the importance of collective efforts to safeguard the interests of the businesses by minimizing the impact of the recent events in the country. Dr Esam specifically made a point to work closely with the small and medium enterprises (SMEs), the segment which represent 85% of the total industrial layout and had hit hard by the recent crisis.
Adnan Yousif, President and the Chief Executive of the Abaraka Banking Group (ABG) shed light on Bahrain’s stature as the banking and financial centre in the Middle East. “Bahrain being the first country to offer banks and financial sectors incentives in the early 70s has established its position as a leading and the most competitive banking centre in the MENA region,” he said.
The BCCI board member Abdulhameed Al Koohiji called for greater action on the part of the Central Banks to help the local businesses and especially the SMEs, which according to him serve as a backbone of the national economy.
Earlier this week, Fitch Ratings affirmed Bahrain’s rating at BBB. Fitch in its latest report titled ‘Finding a Way Forward in Bahrain’ examined the developments that led to it affirming Bahrain’s ‘BBB’ long-term foreign currency IDR and ‘BBB+’ long-term local currency IDR.
Since 1 June 2011 Bahrain has lifted its state of emergency, announced the withdrawal of Gulf troops, held a national dialogue, moved trials to civilian courts, released several prisoners and set up an independent commission to investigate human rights abuses. The latter in particular is a vital move, as it suggests more willingness by the royal family to analyse the grievances against it than shown earlier in the year. The revival of a dialogue is also encouraging because it eschews violence in favour of consultation, if imperfectly.
Al Wefaq, Bahrain’s largest opposition party, has rejected the dialogue’s main recommendations on political reform and protests continue. They are likely to do so for the foreseeable future but remain less violent than in February-March. Barring a return to serious violence or severe disruptions to Bahrain’s economic life, this is unlikely to negatively affect the rating further. Fitch believes that the fiscal and economic pressures arising from the hardening of social attitudes are adequately reflected in Bahrain’s ‘BBB’ rating.
However, the deepening of social divisions will weigh on the budget beyond 2011 as the government tries to assuage them with higher social spending. Aid from neighbours totaling $10billion over the 2010s will reduce Bahrain’s financing requirements, but increase its dependence. Bahrain has also suffered reputational damage, which could affect the fortunes of its financial sector. Together, these factors have weakened Bahrain’s credit quality.
Tourism declined sharply in Q111, especially as the Grand Prix was cancelled. Real estate also contracted, but the financial sector showed resilience. Despite some outflows the retail banks’ deposits and assets continued to grow and no emergency support was required. There could be a mild recovery in H211 with the gradual return of Saudi visitors.
A 40% yoy increase in the average price of oil in 2011 will give exports and public revenue a large boost. This will relieve some pressure on the budget, which is set to expand by 19% in 2011, after growing 27% in 2010. However, Bahrain entered the Q111 political crisis on a weaker fiscal footing than it had in 2007, when it was upgraded to ‘A’. Debt will have tripled to 49% of GDP by end-2012 from 16.4% in 2008.
A substantial worsening in the security situation and protracted delays in the political reform process would result in renewed downward pressure on the rating. By contrast, genuine political reform would lead to a sustainable improvement in Bahrain’s political environment, with positive consequences for the fiscal and economic outlook and the rating.