Banking Special: Bahrain Remains Challenged » Gulf Business

The Bahrain banking sector continues to face the challenges of ongoing political issues connected to the unrest, which has undermined the financial sector and slowed economic expansion. Moreover, both banks and the banking sector continue to face challenges still linked to the global financial crisis. The onshore commercial banks are experiencing slow growth due to the lacklustre economic performance whilst some offshore banks are still facing financing difficulties.

Economic growth in 2012 is likely around three per cent, the lowest in the Gulf Cooperation Council. Growth is assisted by an economic development package from the GCC which began this year. This provides up to $10 billion over 10 years to protect spending on social and physical infrastructure from oil price movements, thus enabling the government to reduce the amount of borrowing required for capital projects.

Whether higher development spending will help ease social and political strains remains uncertain. Higher political risk perceptions, if they persist, will likely make it harder to generate the private sector growth required to absorb the expanding Bahraini workforce over the coming years.

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