Leading ratings agency Moody's Investors Service has changed the outlook for the Bahraini banking system to stable from negative as economic growth accelerates, and a $10-billion support package from gulf neighbours strengthens the government's liquidity and stabilises conditions for the country's banks.

"The economy will see slightly higher growth, while the aid package from the Gulf Cooperation Council will help replenish foreign-currency reserves and help to stabilise the economy," said Ashraf Madani, VP-Senior Analyst at Moody's.

Bahrain's real growth in gross domestic product (GDP) is projected to rise to 2.1% in 2019 from 1.8% in 2018.

"We expect Bahraini banks to maintain strong capital, as solid profits will generate sufficient capital to balance rising risk-weighted assets caused by loan growth. And their profitability will remain sound, fuelled by rising lending volumes and stable profit margins," stated Madani.

According to him, the government fiscal reforms will take a toll on the large non-oil economy but the impact will be softened by accelerated off-budget spending on large infrastructure projects, also financed by the GCC.

This will drive continued recovery in the construction and real-estate sectors. Moody's expects domestic credit growth to slow to 4%- 5% from a high 9% in 2018, stated the report.

Moody's expects Bahraini banks' funding and liquidity conditions will remain healthy. They hold ample liquid assets at 34% of total tangible assets, a credit strength. However, large volumes of foreign-currency funding and sizeable depositor concentrations are vulnerabilities for the system.-TradeArabia News Service