An economic report published by a local newspaper mentioned that interest on personal loans in Bahrain increasingly rose nearly two years ago and it is expected to increase this year with the expectations of US steps to raise the interest rate, as the interest on Bahraini dinar is linked to US currency.
The official interest rates is a main indicator and plays a role in determining the direction of bank interest. With the Bahraini dinar link to the US dollar, the Central Bank of Bahrain raises interest on bank deposits with any similar move by the US Federal Reserve, and so does most of the Gulf States; in order to prevent speculation on the national currency.
According to the newspaper, the average interest rates on personal loans has risen within a year, from 4.7% in the third quarter of 2016 to 5.04% at the end of November 2017, according to the latest data issued by the Central Bank of Bahrain, which measures the average interest rates in commercial banks operating in the kingdom.
Despite expectations that the US Federal Reserve would increase interest, bankers see that banks enjoy high liquidity rates which keeps them in a strong position to finance and control prices. However, the US interest rates that Bahrain is following has its effect eventually.
The size of the loans and the facilities provided by the Bahraini banks for their clients in Bahrain from individuals and companies reached 8.6 billion dinars, 3.7 billion of which were personal loans.
The Central Bank does not put any administrative controls on interest rates in the market. Nonetheless, there are no high or low limits for domestic interest rates, as the bank does not seek to directly influence the cost of credit and therefore the banking sector is free to allocate credit the way it sees suitable.
Source Credit: Bahrain Mirror