Cash-rich Bahraini banks not out of woods

Bahraini banks are well capitalised but increasing pressure from social unrest may put pressure on banks to lend more

Bahraini banks appear to have plenty of cash on hand, but analysts are uncertain whether the lenders will put their funds to good use.

The country's top three banks by market capitalisation - Ahli United Bank, Bank of Bahrain and Kuwait (BBK), and National Bank of Bahrain (NBB) - are well capitalised, analysts say, even as political turmoil has put pressure on the country's financial sector. But banks are being asked by some to resume lending in spite of lingering uncertainty about the economy.

"The Bahraini economy is dependent on lending … and this may hinder growth if some banks do not lend," said Mohamed Akbar, a financial analyst at the Securities & Investment Company, an investment bank in Manama, the Bahraini capital.

NBB shares were 9.2 per cent higher yesterday at 70 fils on the Bahraini exchange.With capital adequacy of more than 15 per cent, well over the central bank requirement of 12 per cent, the bank has been singled out by some analysts as an example for other banks.

At the end of last year, NBB's total assets were 2.3 billion Bahraini dinars, while loans stood at 950.8 million dinars. But its rival BBK had total assets of 2.4bn dinars and loans totalling 1.2bn dinars at the end of last year.

One potential problem: the cost of insuring Bahrain's government debt has risen 117 basis points to 292 since January 14, the day an uprising in Tunisia drove Zine el Abidine Ben Ali from the presidency. If the cost of insurance continues to rise, analysts say the risk associated with banks' assets will also rise, restricting the banks' ability to lend further.

Standard & Poor's last month lowered Bahrain's credit rating to reflect the chance of additional pressure on the country's finances. "We believe the political and social uncertainty in the country could have a direct and indirect impact on the banks' financial profiles," the ratings agency said in a note.

The banks are in the precarious position of needing to be prudent but still responsive to investor concerns about future profits.