Bahraini banks to see 8% profit growth in 2019, says central bank governor
Fiscal reforms, “ample” liquidity and infrastructure projects set to boost earnings
Banks in Bahrain are expected to grow their profits this year, helped by sufficient liquidity, an improving economy and several major infrastructure projects under development in the Gulf state, said the governor of the Central Bank of Bahrain.
“Overall profitability in 2018 grew by around 8-9 per cent year-on-year and I think this could be maintained – we have not seen any serious deterioration in the quality of banking assets or credit portfolios and have always maintained ample liquidity in the system,” Rasheed Al Maraj told The National in an interview on Tuesday.
The central bank has maintained a healthy loan-to-deposit ratio over the past decade, while rising US interest rates typically boost banks’ profit margins, he added.
“There are also major infrastructure projects the government is due to implement which I’m sure will require some financing, so there will be growth in credit as they unfold, and they will also have a positive impact on macroeconomic growth," he said.
State-run Bahrain Petroleum Company is expanding the existing Sitra oil refinery at a projected cost of over $5 billion. More broadly, Bahrain’s construction industry is likely to receive a boost from the UAE, Saudi Arabia and Kuwait’s $10 billion aid pledge to Bahrain last October, which aims to support their neighbour’s fiscal reform programme to eliminate its budget deficit by 2022. This could further boost the banking industry, Mr Al Maraj said.
The country received the first tranche of funding last year and is awaiting the second package in the coming months, but the governor would not say how much has been received so far.
Bahrain, the smallest of the GCC’s economies, is also the most debt-ridden, with a non-investment grade rating by S&P Global Ratings, a budget deficit of around $3.5bn in 2017 and a debt-to-gross domestic ratio ratio of 85 per cent. The 2018 figures have yet to be released.
This week, Bahrain’s cabinet approved a reduction in the budget deficit to 708 million dinars (Dh6.9bn) in 2019 and 613m dinars in 2020, and a rise in state revenues. Mr Al Maraj told The National good progress has been made on reducing the deficit through fiscal reforms in recent years, and he does not foresee any negative impact on the banking sector from the latest budget.
He said the central bank is working to encourage more consolidations among Bahraini banks to boost their performance in the years ahead, and he is hopeful the planned cross-border merger of Ahli United Bank and Kuwait Finance House will go ahead as planned following initial regulatory approvals from the central bank.
Increasing the scope of Islamic banks in the kingdom is another objective for the governor in 2019. After witnessing rapid double-digit growth in the past decade, the sector’s performance has levelled with that of conventional banking as it matures. Yet there is potential for it to play a deeper role in the financing of community development projects, including the growth of small and medium-sized businesses, he said.
“We are working to bring in new solutions for the funding of SMEs by sharia-compliant banks, to mitigate the investment risk when compared to established corporates,” Mr Al Maraj said. Bahrain has already introduced some initiatives, such as banking guarantees, to encourage lending to SMEs.
Meanwhile, he is hopeful of increased sukuk issuance in Bahrain in 2019, subject to the country’s financing needs. “We want to see a reasonable level of flow, but are trying to balance our issuances with demand,” he said. “So far there are promising signs of a [healthy pipeline] this year.” Issuances would usually fall in the range of 750 million to one billion dinars each, he added.
Updated: February 26, 2019 07:21 PM