CBB facility 'eases liquidity pressure'.
'In Bahrain, as in the rest of the world, the impact of the financial crisis was felt first through a withdrawal of liquidity, a situation that was reinforced by our currency peg to the US dollar,' said Central Bank of Bahrain (CBB) executive director of banking operations Shaikh Salman bin Isa Al Khalifa to the National Asset Liability Management conference at the Ritz-Carlton Bahrain Hotel and Spa.
'In the final quarter of 2008, we faced a situation in which our financial institutions were facing liquidity pressures, owing to the market reaction to the Lehman Brothers failure.'
'To offset the liquidity outflow that had taken place after the bankruptcy of Lehman Brothers, the CBB instituted a new swap facility that permitted banks to exchange US dollar for Bahrain dinar without a penalty fee.'
'This helped to ease liquidity conditions in Bahrain's money markets and allowed the 2008 year-end to pass without any significant market disruptions,' he said.
'As 2009 unfolded, liquidity pressures gave way to rising credit losses,' he added.
'Within Bahrain itself, losses reported by banks have been in line with those that would have been expected in a normal business cycle.
'The domestic impact of the crisis has been limited in large part due to the fact that our real estate market had not experienced high levels of speculative activity.
'However, since Bahrain banks are major providers of credit throughout the Middle East and North Africa region, they have been affected by credit defaults elsewhere.
'In the course of 2010, the pattern has been one of relatively modest recovery,' he added.
'While credit growth remains subdued, systemic liquidity pressures have abated, and the banking system has become highly liquid.
'Although the swap facility remains available for banks to use at their discretion, no bank has accessed the facility since the early part of this year.
'Deposits with the central bank have grown to high levels and bidding in government bond auctions, which the CBB manages on behalf of Bahrain, remains very strong,' he added.- TradeArabia News Service
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