The head of the Bahrain Association of Banks has said that the country’s lenders remain in good shape despite recent downgrades to four institutions by ratings agency Moody’s.

Moody’s last month downgraded local currency deposit ratings of the National Bank of Bahrain and of Bank of Bahrain and Kuwait (BBK) and long term local currency issuer ratings on Bahrain Islamic Bank and Khaleeji Commercial Bank to B2 from B1, following a similar ratings downgrade a few days earlier to the country’s sovereign rating.

The agency had said that the downgrade reflected both the “government's reduced capacity to support the country's banks in case of need” and the impact of the government’s weakening creditworthiness on the banks’ own balance sheets given the sovereign credit risk they carried.

However, in an interview on the sidelines of the Corporate Restructuring Summit in Dubai on Wednesday, Adnan Yousif, the chairman of Bahrain’s Association of Banks and chief executive of Al Baraka Bank, stressed that the banks were in a healthy position with relatively low levels of non-performing loans (NPLs).

“There is a weakness from our side, and our weakness is sometimes we are poor in providing information to the media, and to others like the ratings agencies,” Yousif said.

“But as chairman of the Bahraini society, I can tell you that banks right now are in very good conditions. NPL is less than 4.7 percent. If you take the net (non-performing loans minus provisions already made against them) we are about 1-1.5 percent. This is the important thing that nobody mentioned,” Yousif said.

“Growth in the banking sector is good. I think that we are in the range of 8 percent – some of the banks have 5 (percent), some of the Islamic banks are above 8 percent. Therefore, we anticipate good business for the banking sector for the coming year,” he argued. “Furthermore, there is a lot of reserves in oil and gas in Bahrain that has already been discovered and I think that will boost also Bahrain’s financial (position).”

Bahrain’s sovereign credit position has been the subject of scrutiny for months, following a spike in the pricing of credit default swaps to insure against a sovereign default by the country in May and June this year as pressure began building on several emerging market currencies.

Eventually, pressure eased when several neighbouring governments including Kuwait, Saudi Arabia and the United Arab Emirates pledged that they would provide aid where necessary and announce a new programme aimed at strengthening the kingdom’s fiscal stability.

A note from London-based Capital Economics issued last Thursday stated that a privately-placed sovereign bond sale undertaken last week, which raised $500 million via five regional banks, according to Bloomberg, would “help the country to meet its external financing needs for a bit longer, but it highlights that fresh international bond sales are off the cards until financing from the rest of the Gulf is secured”.

It said that the current turmoil in emerging markets, coupled with rising bond yields, may have swayed policymakers in favour of a private sale over tapping debt capital markets.

“On its own, the $500 million raised from the bond issue to five regional banks will cover Bahrain’s external financing needs for a couple more months at least, giving the authorities extra time to finalise the details of a financing package from the other Gulf countries,” the note said.

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(Reporting by Michael Fahy; Editing by Shane McGinley)

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