(MENAFN - Bahrain Tribune) Improved macro-economic conditions in Bahrain have helped the banking sector as Bahrain is in the midst of diversifying its economic base where the government has increased it emphasis on infrastructural development in the Kingdom, Global Investment House in a report said.
"The biggest beneficiary is likely to be the banking sector. This is evident by the performance of banking sector on the bourse, while other sectors showing decline in the year 2006. The banking stocks recorded good performance at the end of 2006 with the BSE commercial banks index reporting yearly gains of 6.42 per cent. We expect the Bahraini banking sector to do well in 2007 as the interest rates continue to edge up and the banks are likely to widen their spread. Also, the non-interest income is expected to increase with the increase in trading/fee-based activity."
The GIH report added: "Banks in Bahrain are expected to shore up their retail businesses by expanding their operations in other parts of the region. Banks are also expected to refocus on their target market through a process of re-engineering its retail capabilities, upgrading human resources, improve product range delivery and enhanced client segmentation. Consequently, prospects for Bahrain's commercial banks are challenging given their relative size and lending opportunities. As banks in Bahrain have shown their intentions to grow, it is high time for the bank to move out of its domestic focus and look aggressively for opportunities elsewhere in the region. Since the banking sector in the region is still in a consolidating phase Bahraini banks would have an early mover advantage and can grab substantial market share before others move in."
"The investment sector reported yearly decline of 10.18 per cent at the end of 2006 as compared to 48.05 per cent yearly gains reported in 2005. The hotel and tourism sector index in Bahrain had showed a yearly increase for the last three years, however in 2006, it reported a yearly decline of 2.89 per cent. We believe that 2007 will be a good year for most of the stocks in the hotel and tourism sector driven by development and tourist projects under process in the country. Moreover, Bahrain has been active in conducting conference, which will further drive the business for hotels and the overall tourism in the kingdom. On the other hand, the insurance sector index continued to be the under-performer in 2006.The insurance industry in Bahrain continued to attract a number of insurance players around the globe. In addition, Bahrain plays a leading role in developing the regional insurance opportunity and is also the most attractive in the region. One of the factors for insurance companies to under perform despite the recent developments in the sector is that insurance companies invest about 40 per cent of their reserve in alternative asset classes. So in this market, there are likely to show a drop in profits, as the capital markets have corrected in the region. We believe that insurance companies will be able to show better results, provided the market starts rebounding in the year 2007.
"Government gilts continued to dominate the listed bonds market in Bahrain. However, gradually there have been some bonds from the corporate sector as well. Bahrain Commercial Facilities Company (BCFC) has two bonds worth BD20mn listed on the BSE, while in Aluminium Bahrain's (Alba) bond issue also got listed on the exchange.
"The total listed Bahraini bonds/sukuks amounted to about 2.86 billion at the end of 2006 as compared to 2.5 billion in 2005. The government of Bahrain wants to reinforce the country's role as a global Islamic financial hub and continuous attempts are being made to establish the Bahrain Stock Exchange as the core market for listing and trading of sukuks. One of the most recent addition was from Investment Dar, which was for 100mn with a maturity of 5 years.
"CBB is encouraging the local banks and private institutions (inside and outside Bahrain) to issue sukuks or bonds. The listing of such bonds is yet another step in the diversification of tradable instruments available to investors on the BSE. Not only Islamic financial institutions are seeking to invest in the Shariah-compliant bonds, but also the investment community at large is showing interest in these instruments. With the current increase in interest rates on lending, we believe that the corporates will not shy away from issuing bonds by paying comparative lower interest rates on maturity."