“The financial system appears relatively well regulated, with manageable asset-quality risks. We also view the sovereign as a potential source of support for systemically relevant wholesale institutions. Similarly, we include all wholesale banks’ external liabilities in our assessment of the country’s external financing needs,” it added.
“The currency peg to the US dollar limits monetary flexibility, but persistent current account surpluses have maintained a net external asset position.
“We have revised the transfer and convertibility (T&C) assessment to ‘BBB+’ in line with our regional view of the likelihood of GCC states restricting non-sovereign access to foreign exchange.
“The stable outlook reflects our opinion that political risks and the potential for sharp oil price declines are unlikely to be severe enough to lead to a downgrade in the near term. Large-scale public investment and greater hydrocarbon production should support growth prospects,” S&P in a statement said.
“We could lower the ratings if there were an unexpected escalation of political turmoil such that economic prospects were weakened or external and fiscal performances were threatened. Similarly, if oil prices were to fall below our expectations for a sustained period, if difficulties arose in implementing GCC development funds, or if other government expenditure pressures weakened the fiscal profile, we could lower the ratings.
“We could raise the ratings if a credible political process emerges and a renewed social contract appears likely. In addition, if the boost in public investment improves Bahrain’s growth prospects beyond our expectations, we could raise the ratings,” it added.