BIZ BAHRAIN JAN-FEB 2018

OBG | Business Report
in the first half of the year, though the
consumer price index began edging up
in the third quarter, reaching 1.8% as of
September on the back of higher food
and housing costs.
The introduction of the GCC-wide
value added tax, which will see a 5% levy
imposed on most goods and services,
is one of the factors expected to impact
inflation in 2018.
While the tax is forecast to make a
significant contribution to addressing
Bahrain’s fiscal deficit, it may also
impact consumption levels during
the year, as the effect on costings and
demand are absorbed.
Credit ratings revised
Bahrain enters 2018 with its credit
ratings under pressure, a factor which
could impact borrowing costs.
In early December Standard and
Poor’s lowered its long-term foreign
and local currency sovereign credit
ratings from “BB-” to “B+”, while raising
its outlook to stable. The agency said
the downgrade reflected Bahrain’s
weak external liquidity and increasing
financial risk due to more limited
access to international capital market
financing.
The move came six months after
fellow ratings agency Fitch revised its
outlook f from stable to negative, citing
the slow pace of reining in government
debt, though it affirmed the sovereign’s
long-term foreign and local currency
issuer default ratings at “BB+”.
In mid-December the CBB raised
its key policy interest rate on the oneweek
deposit facility by 25 basis points
to 1.75%, in line with similar increases
witnessed in some other Gulf countries
and tracking the US Federal Reserve.
The bank also adjusted its other
benchmarks, increasing the overnight
deposit rate from 1.25% to 1.5%, its onemonth
deposit rate from 2.15% to 2.4%,
and its lending rate from 3.25% to 3.5%.
Banks in a position of strength
Bahrain’s banking sector maintained
its solid position during 2017, with
liquidity and capitalisation levels strong.
The sector’s capital adequacy ratio
was 19.8% of risk-weighted assets as of
the end of the third quarter, according
to data issued by the CBB in early
December, and retail deposits were
up 4.5% in the 12 months to the end of
October at $45.1bn.
In its latest report, the IMF
acknowledged the stability of Bahrain’s
banks, noting that the sector appeared
well placed to face moderate credit and
liquidity shocks, with most banks having
relatively robust liquidity positions
heading into 2018.
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subscribers worldwide. OBG has
been in Bahrain for 12 years and is
currently working on The Report:
Bahrain 2017 which is scheduled
to be released in the first quarter
of 2017. For more information, visit
www.oxfordbusinessgroup.com or
call us in Bahrain at 1715 1582.
January-February 2018
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