The outlook for Bahrain's banking system remains negative, reflecting expectations that challenging credit and business conditions will continue over the medium term, notwithstanding the modest rebound in the economy in 2010, says Moody's Investors Service in its new Banking System Outlook on Bahrain.
These expectations are based on the continued weakness in Bahraini and regional real estate and the impact it is having on the rest of the economy.
The negative outlook is also driven by (i) ongoing franchise challenges at Bahraini-based wholesale lenders, as they try to refocus their business towards more profitable segments; and also by (ii) the more severe challenges at investment banks, which in many cases do not possess sufficient franchise depth to cope with the sharply lower private investment activity and depressed regional asset values.
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