The outlook for Bahrain's banking system remains negative, says Moody's Investors Service in a new report published today, 18 March 2013. The outlook is unchanged from 2009 and primarily reflects the challenging domestic operating environment, amidst ongoing social unrest, which continues to affect investor confidence and will sustain elevated levels of non-performing loans (NPLs).
However, over the outlook period, Moody's also expects that the banks will maintain their healthy funding and capital profiles, supporting the system's financial stability. Bahraini banks are faced with a challenging operating environment, characterised by social unrest, fragile consumer confidence and a troubled real-estate sector. As a result, Moody's expects 2013F non-oil GDP growth to slow to around 3.5 per cent from five per cent in 2012, which is well below pre-crisis growth levels and one of the lowest growth rates amongst GCC countries. A resurgence of large-scale protests also remains a key downside event risk for the Bahraini economy and banking system over the outlook horizon.
"Despite the benefits of high government spending, we expect that these challenging conditions will weigh on the local banks' asset quality and profitability over our 12-18 month outlook period," said Christos Theofilou a Moody's Assistant Vice President and author of the report.
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