Dubai: Bahrain Islamic Bank BSC is seeking to sell about 82 million dinars (Dh799 million, $218 million) of unproductive assets such as land and shares as part of a five-year plan to boost growth.
The lender sold 14 million dinars-worth of these assets in the first half and plans the sale of a similar amount in the remainder of the year as it focuses on its main lending business, Chief Executive Officer Hassan Jarrar said in a phone interview from Manama, Bahrain. The bank has appointed an external adviser to dispose of “all non-core investments,” including properties and shares in associate companies, he said.
“The main new challenge in Bahrain — and the region — is liquidity, which is causing a spike in the cost of funding in the local currency,” Jarrar said. “The rates banks pay now on Bahraini dinars can be as high as double that of the US dollar rates.”
S&P Global Ratings downgraded Bahrain in February because its vulnerability to slumping oil prices has increased since 2009, while government spending has risen in response to the global economic crisis and civil unrest. Fitch expects Bahrain’s general government debt to rise to almost 80 per cent of gross domestic product this year, from 62 per cent in 2015, and sees the budget deficit widening to 15.4 per cent of economic output from 14.8 per cent.
Cost-to-income ratio
Bahrain Islamic Bank, in which state-controlled National Bank of Bahrain BSC is the biggest shareholder, plans to boost revenue by 20 to 25 per cent annually, achieve a return on equity of 15 per cent to 16 per cent and cut its cost-to-income ratio to the mid-40 per cent from 60 per cent over two years, Jarrar said. The corporate and commercial business is a new focus, where financing increased 22 per cent in the first-half, while lending at its main retail segment grew 9 per cent, Jarrar said.
Bahrain’s “real estate sector is vibrant and investment is returning,” Jarrar said. “Prices of land, residences, hospitality and some retail-oriented properties are back to well above pre-crisis levels.”
