Personal loans fuel Bahrain bank lending

Manama: Bahrain bank lending is growing at the fastest pace in three years as the economy recovers from the political unrest that hurt the country's image as a regional financial centre.

Lending rose 12.9 per cent in the first 10 months compared with 3.5 per cent in the first half, according to data on the Bahrain central bank website. Personal loans increased 21 per cent to 2.1 billion dinars (Dh20.55 billion) and business loans gained 11 per cent to 4.1 billion dinars, the data shows.

"It's broadly encouraging," Liz Martins, a Dubai-based senior economist for the Middle East at HSBC Holdings Plc, said in a December 6 interview. Still, "I would be more encouraged to see more growth in business loans than in personal loans."

Economic growth in the kingdom slumped following demonstrations by protesters. The yield on the Bahrain government's 5.5 per cent bond due March 2020 has risen 128 basis points, or 1.28 percentage points, this year to 6.56 per cent, according to data on Bloomberg.

The average yield on sovereign bonds in the GCC, of which Bahrain is a part, dropped 16 basis points in the period to 5.03 per cent on December 9, according to the HSBC/Nasdaq Dubai Middle East Conventional Sovereign Dollar Bond Index.

Bahrain, rated two levels above junk grade at Standard & Poor's, saw its default risk more than double this year, hitting a high of 413 on November 25 before falling to 390 yesterday, according to data provider CMA, which is owned by CME Group Inc and compiles prices quoted by dealers in the privately negotiated market.

Bahrain's economy grew 2.4 per cent in the third quarter from a year earlier, the fastest pace in three quarters, according to the state statistics office. Economic expansion had slumped to 1.1 per cent in the three months to June.

Bahrain sold $750 million in seven-year Islamic bonds in November, becoming the first Arab country hit with pro-democracy protests this year to tap global bond markets.

The yield on the sukuk has dropped 51 basis points since it was sold to 5.77 per cent.