Bahrain Central Bank Chief “Worried” About Banks’ Profitability

Bahrain’s central bank governor has warned of a possible slowdown in economic activity in the Gulf state due to the current volatility, which might in turn affect the profitability of lenders operating there.

“My worry is about the level of profitability (among local banks),” Rasheed Al Maraj said at the sidelines of a conference in Bahrain.

“If there is no vigourous economic activity, then the lending might not be of the same magnitude.”

The central bank chief reiterated that banks will be affected only if the current volatility in oil price tampers with economic growth over a longer term.

“There will be an effect on banks not because of the oil price slide but because of economic activity,” Al Maraj said.

“If there is going to be sustained low levels of oil price, then it is going to change the dynamics in terms of economic activity.”

But despite such sentiments, the governor said that the banks in the country are in a far better position than before to withstand any economic turbulence.

“Banks are on much better footing. They are well prepared for any kind of negative downturn since they have cleaned up their portfolio, become more conservative on their approach to lending. So this gives me comfort that it is not going to be as severe this time.”

Al Maraj also told reporters that he expected commercial lending in the country to grow after a temporary lull. He also said ruled out any impact of low oil prices on liquidity of the banks.

The central bank chief, who is also a staunch advocate of consolidating smaller banks, said that at least one merger could be expected in 2015. Although he did not specify any details, Al Maraj said that such consolidation will only strengthen the sector.

“Smaller banks will face a challenge to operate in the market, find the right resources and acquire the right people.

“We guide them (by encouraging to merge) to a safe future.”