Bahrain's economy should continue to recover in 2022 thanks to higher oil prices and increasing regional economic activity, said S&P Global Ratings in a new report.

Bahrain’s credit growth is to pick up slightly to 5%-6% in 2022, supported by the economic recovery and improving business and consumer sentiment, S&P Global Ratings said in the report titled “Bahrain Banking Sector 2022 Outlook: Edging Closer To Pre-Pandemic Profitability”.

The improvement in the economy and corporate activity should prevent further deterioration of banks' asset-quality indicators.

“We expect some deterioration to come from deferred exposures once the Central Bank of Bahrain's support measures are lifted and loans to companies in still-vulnerable sectors, including real estate, hospitality, and small-to-midsize enterprises, are reclassified,” it added.

The Bahraini banking sector is set to benefit from expected interest rate hikes, assuming banks adopt a pragmatic approach by not reflecting the rate increase systematically where it could cause borrowers to default. Although its contribution to the overall funding profile is moderate, external debt could prove vulnerable to domestic or regional stresses.

“We expect the impact of the Russia-Ukraine conflict on the Bahraini banking system to be limited for now,” S&P Global said in the report. – TradeArabia News Service