Banks’ profitability not hit by CBB Covid-19 measures

MANAMA: Measures announced by the Central Bank of Bahrain (CBB) to mitigate the financial impact of Covid-19 on companies and individuals have not significantly affected the performance and profitability of banks, an expert has said.

Bahrain Association of Banks (BAB) legal and regulatory framework committee chairman Dr Adel Al Basha said in a statement yesterday that the CBB granted banks other facilities instead, including granting retail banks a facilitation of repurchase arrangements (repo) up to six months at zero per cent on a case-by-case basis.

The banking regulator also allowed the liquidity reserve ratio for retail banks to be reduced to 3pc from 5pc.

Dr Al Basha said the controls and regulatory measures announced by the CBB required retail banks, finance companies and microfinance institutions to postpone the instalments of any borrower or credit card holder affected by the economic repurcussions of Covid-19, without imposing any fines, interest or increase in the percentage of profit/interest for six months unless the borrower agreed to pay within a shorter period.

A maximum cap of 0.8pc has also been set on the collection fees imposed by local banks and finance companies on debit card transactions, to reduce costs for companies.

The expert said that calculating the impact of these measures on banks’ profitability remains a purely technical issue, as it differs from one bank to another.

However, if a decline in bank profits in Bahrain is seen, it will be caused by weak economic activity and the closures imposed by Covid-19 pandemic, he added.

Therefore, the expert believes that the banks’ contribution to the national economy by deferring borrowers’ instalments will benefit both the banks and Bahrain.

“The financial institutions’ commitment to the package reflects their keenness to support economic and social stability, and pursuing development in the kingdom. The recovery of the economy and restoring markets’ activity to normal are banks’ top priority, as it contributes to revitalising business,” Dr Al Basha explained.

“The measures that were implemented since March would be reviewed by the CBB at the end of September in consultation with the banking sector. This will be done in a manner that ensures more liquidity and flexibility permitting banks to sustain the process of funding their customers.”

Moody’s Investors Service said in a report last week that while banks in the GCC region will see profits fall this year as economies shrink amid the coronavirus outbreak and lower oil prices, they have adequate capital underpinning their solvency.

The pandemic has hit hotels and restaurants, airlines, automotive industries, real estate, trade, tourism and retail sectors in particular, with small and mid-sized enterprises being the most vulnerable.

The UAE and Bahrain have the largest non-oil sectors relative to the size of the economy and will likely be impacted the most.

The economic contraction in the non-hydrocarbon economy will translate into significantly reduced banking activity.

“The economies of all six GCC countries will contract, sapping the banks’ two main income streams – interest on loans, and fees and commissions – while provisioning charges for loan losses will rise sharply,” said Nitish Bhojnagarwala, vice-president and senior credit officer at Moody’s.




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