Rating agency Moody’s has improved its outlook for Bahrain’s banking sector from negative to stable on the basis that a $10 billion financial support package from the Gulf Cooperation Council (GCC) should spark higher economic growth.
“The economy will see slightly higher growth, while the aid package from the GCC will help replenish foreign-currency reserves and help to stabilise the economy,” said Ashraf Madani, a vice president – senior analyst at Moody’s.
“We expect Bahraini banks to maintain strong capital, as solid profits will generate sufficient capital to balance rising risk-weighted assets caused by loan growth. And their profitability will remain sound, fuelled by rising lending volumes and stable profit margins.”
In addition, Moody’s states it expects Bahraini banks’ funding and liquidity conditions to remain healthy while it forecasts that growth in GDP will rise from 1.8% in 2018 to 2.1% in 2019.
And while government fiscal reforms will adversely affect the large non-oil economy, the impact should be softened by accelerated off-budget spending on large, GCC-financed infrastructure projects which will also drive the continued recovery in the construction and real-estate sectors.
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