Much of Bahrain’s banking sector recovery hinges on the government’s plans to resume spending on infrastructure projects and consolidation among its fragile Islamic financial institutions, following a year of unrest that has dimmed the sector’s prospects.
Bahrain was once a financial hub in the Gulf, attracting international lenders such as BNP Paribas and Citigroup to the island state’s shores before the emergence of similar commercial centers in Doha and Dubai. It is home to 123 conventional banks with combined assets of around $200bn.
But after more than 12 months of political troubles, Bahraini bankers are putting a brave face on their sector’s growth prospects, pinning their hopes on a rebound in local infrastructure spending, such as the expansion of the domestic airport and the upgrade of its oil refineries.
“There are a number of large projects planned for Bahrain, mainly in oil and gas, but there’s also talk about housing, infrastructure spending on roads, flyovers and a new bridge to Saudi Arabia,” Mazin Manna, chief executive officer of Citi Bahrain, told Zawya Dow Jones in a recent interview. He estimates between $15bn and $20bn of spending will take place in the next 2 to 3 years.
The Citi banker said government spending will drive demand for long-tenor financing. “It will have to be a mixture of all financing sources: commercial loans, ECA’s (export credit agencies), sukuk, conventional bonds, and securitisation of receivables. There will be a need to tap various funding sources,” Manna said.
Bahrain’s gross domestic product is seen growing 3.3% this year, up from 2.2% in 2011, because of anticipated government spending, Emirates NBD recently said. Bankers also point to the proximity of Saudi Arabia, the Arab world’s largest economy, as a means to bring in new business.
Still, bankers based in Bahrain note that office occupancy levels have come down and a number of retail shops appear to have closed. Unemployment has been on the rise, while some European banks have quietly reduced their exposure in the region. Some bankers complain it is more difficult to get clients or visiting employees into the country as a result of the heightened security measures.
Local bank liquidity levels have also been of concern with some companies facing hefty maturities this year.
“We will see a recovery, it might not be in 2012, but I think in 2013 and beyond. I think 2012 will be a year (with banks) focusing on new regulatory requirements. There are some challenges, liquidity has been a focus,” said Ali Moosa, senior country officer for JP Morgan in Bahrain.
In the medium-to-long term, bankers say Bahrain will try to maintain its position as one of the world’s leading Islamic finance centers making it important to see how the country’s Shariah-compliant lenders, hurt by the regional real estate downturn, will weather the economic and political unrest.
The central bank has pushed the country’s 26 Shariah-compliant lenders to consolidate but has been mostly unsuccessful until now. Only recently, talks between Bahrain Islamic Bank and Al Salam Bank to form a lender with $4.5bn in assets collapsed.
“Banks will have to consolidate. But the biggest challenge here is the family ownership of many of these banks, the biggest challenge is the culture,” said Hassan Jarrar, chief executive of Standard Chartered in Bahrain.
source: Gulf Times