Mubasher: Moody's Investors Service said that the outlook for the banking system in Bahrain remains “Negative”, as constrained government spending will deteriorate the kingdom’s economic growth, according to a report published on Monday.
The ratings' agency expects Bahrain’s economic growth to slow to 2.8% in 2018 as compared to 3.9% in 2017 in line with the constrained spending by the government, due to its large budget deficit, the report added.
As a result, Moody’s projects credit growth to decelerate slightly to 5%-7% from 8% in 2017.
Bahraini banks’ net income is forecast to decrease slightly to around 1.3% of average assets in 2018, compared with 1.4% in 2017. This drop is mainly due to higher loan-loss provisions as problem loans rise.
Moody’s expects pre-provision profit to remain at around 1.9% of average assets benefitting from cost-cutting initiatives.
"Despite a rise in oil prices, the government's budget deficit will oblige it to constrain spending, which will moderate growth in the non-oil economy. Higher borrowing costs due to rising interest rates, and reduced subsidies will weigh on corporate and household income, putting mild pressure on loan quality. In addition, rising government debt is reducing the government's capacity to support the country's banks in a crisis," a vice president and senior analyst at Moody's, and author of the report, Ashraf Madani, said.
Moody’s projects capital to remain strong and stable, with average tangible common equity likely to remain at 12.3% of adjusted risk-weighted assets, as moderate loan growth is balanced by the banks' strong profit retention.
