GCC Equities Review: Bahrain banks feel the pressure as investors focus on sovereign debt

Khaleeji Bank and Ithmaar Bank were the two Bourse stocks that experienced the biggest decline in values

  
Traders talk with the officials at Bahrain Bourse in Manama, Bahrain, February 7, 2018.

Traders talk with the officials at Bahrain Bourse in Manama, Bahrain, February 7, 2018.

REUTERS/Hamad I Mohammed

The Bahrain All-Share Index declined in value during the first six months of 2018, but the decline – at 1.6 percent – 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 neighbouring countries, including 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.

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 percent decline in their share price.

Chiradeep Ghose, a banking analyst at SICO Bahrain, 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 Bahrain 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 (GDP) growth in Bahrain of 2.8 percent this year, down from 3.7 percent last year.

“In addition, rising government debt is reducing the government's capacity to support the country's banks in a crisis," Madani added.

Gainers

1. ARAB BANKING CO 25.42%

2.  BAHRAIN TELECOM 19.61%

3. UNITED GULF HOLDING 19.15%

Losers

3. ARAB INSURANCE GROUP -16.16%

2.  ITHMAAR BANK -31.03%

1. KHALEEJI BANK  -31.36%

Click through the links below read how markets in each country fared.

Kuwait

Oman

Qatar

Saudi Arabia

United Arab Emirates

(Reporting by Michael Fahy; Editing by Shane McGinley)

(michael.fahy@thomsonreuters.com)

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© ZAWYA 2018

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