Bahrain’s banking regulator has strongly criticised ratings agency Standard & Poor’s (S&P) downgrade of Bahrain. Central Bank of Bahrain (CBB) Governor Rasheed Al Maraj told the fifth annual GCC Financial Forum at the Four Season Hotel Bahrain Bay that the downgrade was “unwarranted, untimely and uncalled for”.
According to Mr Al Maraj, the agency had failed to take into account the fact that Bahrain accelerated its fiscal consolidation plan, introducing price increases on fuel, fee increases on tobacco and alcohol, redirecting subsidies on electricity, water and meat and cutting costs in ministries and government departments.
Calling S&P’s action too drastic, Mr Al Maraj said it was also unfortunate that it came when Bahrain upsized and launched a $750 million, two-part bond reopening. “This was on the back of strong demand with the order book topping $1.35 billion but we cancelled the re-tap for the sake of our investors,” he added.
Reuters reported that Bahrain has started taking orders again to raise funds through a re-opening of its previous two-part bond sale. The kingdom has set initial price thoughts for the re-tap, split between five- and 10-year portions, at respectively 5.95 per cent and 7.65pc.
Bahrain had priced its re-tap last week at 5.70pc for the 5-yr portion and 7.40pc for the 10-year piece. S&P cut Bahrain by two notches to ‘BB/B’ with a stable outlook, pushing the rating below investment grade and making Bahrain the first of the wealthy Gulf oil exporters to suffer that fate in the current downturn.
Bahrain is working with the same five banks – Bank ABC, BNP Paribas, Citigroup, HSBC and JP Morgan – which arranged its $1.5bn bond in November and the cancelled re-tap. Another key issue according to Mr Al Maraj was the problem of international banks becoming reluctant to deal with banks in Bahrain and the Gulf because of tight US regulation. “Many international banks have curtailed their correspondent services with regional and local banks. Some of the banks have refrained from dealing with exchange houses,” he said. “This has affected a wide sector of the population, especially the expatriates.”
Mr Al Maraj said officials in Bahrain, one of the Gulf’s financial centres, had met US Treasury officials last November and planned another meeting on the issue in April. US regulations, part of a tougher regime introduced since the financial crisis, include scrutiny of potential tax avoidance and anti-money laundering rules.
These have imposed extra costs on US banks, prompting many to reduce the number of foreign institutions with which they do business, and making international banks operating in the US more wary of ties with the Gulf. Some banks in the Gulf have been under particularly close scrutiny by US authorities because of a drive to curb financing of Islamist militancy and flows of money to Iran.
Mr Al Maraj said Bahrain was engaging with US authorities including the Federal Reserve and the Office of the Comptroller of the Currency, as well as with international banks, to convince them that the compliance standards of Bahraini and Gulf banks were in line with global practices. “We are hoping they will give us some flexibility ...” he said. “This is a serious issue for us.”
The Governor also said Bahrain was committed to the peg of the Bahraini Dinar against the US dollar. “We will continue the peg as it has helped Bahrain and we are comfortable with it.” The Bahraini Dinar, pegged at 0.376 to the dollar, has come under pressure in the foreign exchange forwards market in the last several months.
By Avinash Saxena
