CBB, EDB chiefs lambast credit rating downgrade

Manama : Bahrain’s recent credit rating downgrade by Standard & Poor’s (S&P) from investment grade to junk status, has been slammed by the Central Bank of Bahrain (CBB) and Economic Development Board (EDB) chiefs.

CBB Governor Rasheed Al Maraj termed the move as “unwarranted” and “untimely” while EDB chief executive Khalid Al Rumaihi said “the rating agencies are trying to jump ahead.”

Both of them were addressing the 5th Euromoney GCC Financial Forum yesterday. More than 500 leading international and regional financial experts from finance, investment, government, regulatory organisations, businesses and members of the media from 24 countries attended the event.

Rumaihi said S&P should understand the dynamics of Bahrain economy. 

“We shared with them the overall strength of the economy. They seem to have taken just oil price into account. It will impact our funding cost and we are disappointed. Yet, we still have great value proposition to offer with strong regulation, low cost of operation, geographic advantages and well-advanced local talent pool and financial sector,” said the EDB chief.

Al Maraj too expressed his disappointment over the issue.

“We are extremely disappointed. This is unwarranted and untimely. Since their last rating action, we have taken many steps, including very difficult measures. We are surprised how this happened despite taking all the measures,” CBB Governor said

He added that the rating downgrade affected the fund-raising efforts of the Kingdom. Bahrain had stopped its plans to raise US$750 million through international bond offering, after the rating downgrade.

“What concerned me more about the recent downgrade was its probable effect on banks and financial institutions in the Kingdom,” Al Maraj said, later in the open ‘town-hall’ discussion.

“No discussion has taken place regarding corporate tax, and value added tax has been deliberated on the GCC level… but no timing, no details of it has emerged yet. I hope that this discussion regarding taxation would progress,” he added.

A new pan-GCC payment system will come into force soon, said the CBB Governor, adding that the governors of central banks have already approved a unified payment system for the GCC countries and when finally rolled out, it will reduce the cost of doing business.

“For many years, CBB has been working on improving banking supervision and improving the regulatory environment, but didn’t publicise the efforts, leading to public ignorance regarding CBB achievements,” added Al Maraj. 

He noted that CBB has to proactively use social media to communicate its policies to the public, rather than just relying on traditional media as is the practice now.

“Our system of subsidies is unfair and supports the wealthy. We have to direct the subsidies to the right beneficiaries. Hence, cash subsidies through direct bank credit are the need of the hour. We will not be able to sustain a subsidy oriented life style.

“Forty years of good times has come to an end, now we have entered a different economic order. Bahrain was not like today’s commodity-oriented economy 40 years ago. We have to revisit the entrepreneurial capabilities of those times,” said the CBB Governor

Regarding the strength of Bahrain banking sector, he said that even in a recent stress test conducted by IMF, in addition to the central banks’ in-house checks, banks were graded with only moderate risks.

Al Maraj added that US dollar peg has done Bahrain a lot of good, bringing stability and cutting down volatility that could harm our economy and CBB sees no reason to change the peg.  He added that even IMF in its recent report endorsed the policy of dollar peg.

The CBB Governor added that the banks in the Kingdom have to get bigger and stronger, and the central bank is making efforts aimed at achieving that.

He also requested the international banks to reconsider their practice of curtailing their correspondent services to the regional or local banks. 

“This has affected the wider sector of the Bahrain community, especially the expatriates. We are hopeful that international banks will understand that the banks in the Kingdom and the region are in compliance and aligned with all international practices and will give us some flexibility in this regard.”

Euromoney Conferences Consulting Editor Richard Banks presented the inaugural welcome note in the forum and Ercel Global Advisory Chief Executive Officer and Founder Gazi Ercel delivered the keynote address. Other senior dignitaries present at the event were Mumtalakat CEO Mahmood Hashim Al Kooheji, National Bank of Bahrain CEO Abdul Razak Al Qassim, BBK CEO Abdulkarim Bucheery, The Bank of China and MasterCard Independent Non-Executive Director Jackson Tai.