MANAMA: Bahrain’s central bank will require local lenders it sees as key to the stability of the Gulf country’s banking system to take more steps to ensure their soundness, its Governor Rasheed Al Maraj said yesterday.
The kingdom of 1.3 million people has based its economic strategy on becoming a regional financial hub as it lacks the petrodollar wealth of its Gulf Arab neighbours. The financial industry makes up around 17 percent of the $29 billion economy.
But two years of social unrest have weighed on the banking sector, with annual lending growth slowing to 7.8 percent in November, the lowest level since August 2011.
Maraj did not say which banks the central banks defines as key to the country’s banking stability or give details of the steps the central bank will ask them to take.
“This is a process that will have to take time and we will have to engage with those banks that have been selected,” he said.
Ahli United Bank is Bahrain’s biggest retail bank by assets, followed by BBK and National Bank of Bahrain.
Maraj said there was at least one bank merger in the making in non-Opec Bahrain, which he welcomed, but he declined to give details.
“There’s no room for small banks. The economic atmosphere is challenging, and the competition in the market is becoming very fierce,” he told a financial conference in the capital Manama.
Al Salam Bank said in January it was in merger talks with an unnamed regional bank, while Gulf Finance House said it was studying options to merge its unit, Khaleeji Commercial Bank, with other Bahraini banks.
The central bank is not encouraging large borrowing by the government to finance its budget deficit but it will try to continue with bond issues necessary to manage liquidity and push for a lower fiscal gap, Maraj said.
“Over the years, we have managed to issue different types of instruments, whether conventional or unconventional, and we will continue with this trend but taking also the view that some of these issues will have to be moderated as we don’t want to build a huge sovereign debt,” he said.
Bahrain, which is expected to get $1bn in aid a year from its wealthier Gulf neighbours over the next 10 years, last sold a $1.5bn, 10-year bond in June. The small oil exporter is the only nation out of the six-member Gulf Cooperation Council facing a fiscal deficit this year. Reuters
