Bahrain Banks’ Shares Under Pressure

The Bahrain All-Share Index declined in value during the first six months of 2018, but the decline–at 1.6%–was not particularly dramatic.

A sovereign debt scare in May, when spreads on credit default swaps ballooned due to fears over the scale of the country’s debt, before receding after Saudi Arabia, the United Arab Emirates and Kuwait all pledged financial support to the kingdom, if required, impacted on the performance of many of Bahrain’s financial firms, Zawya reported.

Unsurprisingly, given concerns over the government’s ability to repay its debt, a number of the country’s banks found that their shares came under pressure, with Ithmaar Bank and Khaleeji Bank both witnessing a 31% decline in their share price.

Chiradeep Ghose, a banking analyst at SICO Investment Bank, said in a response to emailed questions from Zawya that shares in both banks were “impacted by a combination of weaker results and investor concerns (over the) waning fiscal condition of Bahrain.

“It may be fair to assume that most Bahraini banks have a healthy share of government bond(s) on their balance sheet, and it may negatively impact their earnings outlook,” Ghose said.

A report published by Moody’s earlier this month argued that the outlook for Bahrain’s banking sector remained negative. In a press release accompanying the report, Ashraf Madani, a vice president and senior analyst at Moody’s, said: “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.”

Moody’s has forecasted slowing gross domestic product growth in Bahrain of 2.8% this year, down from 3.7% last year. “In addition, rising government debt is reducing the government’s capacity to support the country’s banks in a crisis,” Madani added.