Bahrain lending grows at fastest rate since 2009

Bahrain bank loans to private businesses grew at the fastest pace since 2009 as transport and construction industries picked up, evidence the state managed to jump-start growth after last year’s anti-government rallies. Private-sector lending in the smallest Persian Gulf country grew 17 percent in March, the fastest pace since May 2009 and almost six times more than Kuwait’s, the latest central bank data shows. Bahrain was the most-affected nation in the six-member Gulf Cooperation Council by popular unrest that swept through much of the Middle East last year, toppling leaders in Tunisia, Egypt, Libya and Yemen. The fallout from protests by mostly Shiite demonstrators demanding more civil rights from the Sunni Muslim rulers dragged Bahrain’s economic growth to 1.8 percent in 2011, the slowest pace in at least 13 years and the lowest in the GCC. Bahrain’s $26 billion economy will probably grow 3.2 percent this year, according to the median forecast of 10 economists compiled by Bloomberg. That’s on par with expectations of 3.3 percent in Latin America and below the Middle East outlook of 4.1 percent. The faster-than-expected loan growth in March “underscores that the ruling Al-Khalifa family has so far managed to contain protests and prevent economic activity from being disrupted” even as the underlying factors for the uprising remain unresolved, Torbjorn Soltvedt, senior analyst at U.K.-based risk analysis company Maplecroft, said in an emailed response to questions. The yield on the government’s 5.5 percent dollar-denominated bonds due March 2020 has dropped 62 basis points this year to 5.75 percent Wednesday. Average yields on Middle East sovereign debt fell 24 basis points over the same period to 4.67 percent Tuesday, according to the HSBC/Nasdaq Dubai Middle East Conventional Sovereign U.S. Dollar Bond Index. The cost of insuring Bahrain’s debt against default for five years also rose less than the average for the region, climbing five basis points this quarter to 360 basis points Tuesday, according to data provider CMA. Five-year credit default swaps for the GCC gained 17 basis points to 227 basis points, according to CMA, which is owned by CME Group Inc. and compiles data from the privately negotiated market. The contracts pay the buyer face value if a borrower fails to meet its obligations. Outstanding loans to businesses grew 14 percent in March, spurred by a 12 percent advance in loans to the transport and communications industry and 2.6 percent growth in lending to construction and real estate, the central bank said in a statement on its website. The GCC banking industry is split into two camps: Those moving away from risk aversion following a credit growth slowdown triggered by the 2008 global financial crisis, and those that remain cautious, Liz Martins, a Dubai-based senior economist for the Middle East at HSBC Holdings Plc, said by email. Central bank data “suggests that Bahrain is in the former camp in spite of all its problems,” she added. Lending to private businesses rose to a three-year peak of 13 percent in Saudi Arabia in April, while in Kuwait, credit facilities to residents in March grew 3 percent, central bank data shows. Loans and advances extended by lenders in the United Arab Emirates advanced 2.5 percent in the year to March. Still, “the unresolved political tensions in Bahrain may keep a lid on growth prospects going forward,” Martins said. Low-level protests are still held daily in Shiite villages in the island nation of 1.2 million people, home to the U.S. Navy’s 5th Fleet. Tensions have simmered since the government cracked down on mass protests last year. At least 35 people were killed between Feb. 14 and April 15, 2011, according to the Bahrain Independent Commission of Inquiry, which investigated the unrest. Shiites make up about 70 percent of the population, according to U.S. government data. Protests in Bahrain undermined confidence in the country as a GCC financial hub. Credit Agricole SA, France’s second-largest bank by assets, moved its regional headquarters to Dubai from Bahrain, three bankers familiar with the matter said last month. “Bahrain will struggle against the more attractive political and regulatory environments in Dubai, Qatar, and even Saudi Arabia, as services firms shift operations owing to concerns over political unrest,” the Economist Intelligence Unit said in a report last month. Bahrain’s economic growth may reach as much as 5 percent this year, driven mostly by “increases in crude oil production, manufacturing and government spending,” the Economic Development Board said last month. Growth data for 2011 is “a positive signal that Bahrain’s economy is rebounding from the impact of last year and that government measures to boost growth are taking effect,” Kamal bin Ahmad, the board’s acting chief executive, said in the statement. From DailyStars