Mashreq says Bahrain's banking sector sailed through the war smoothly — and it's betting on the kingdom's long game

The regional war could have weighed on Bahrain's banking sector, but it didn't — and that’s mostly thanks to the proactive measures of the central bank, which moved in tandem with other Gulf central banks to offer support to the sector before it even needed it.

The Central Bank of Bahrain’s liquidity package gave lenders a buffer before the stress peaked, and the decision to defer loan installments helped ease cash flow pressure on companies at the sharpest moment, Mashreq Bahrain’s country head Ahmed Dayyat tells EnterpriseAM. The combined effect: no visible disruption to bank liquidity and — critically — room for banks to keep extending support to clients rather than pulling back.

“Those efforts along with initiatives taken by banks individually managed to ensure that [the sector] sailed very smoothly,” Dayyat tells us. “We haven't seen any disruptions,” he adds.

That outcome was not inevitable. Bahrain entered the conflict carrying the second-highest government debt-to-GDP ratio of any Fitch-rated sovereign globally, at nearly 150%. Debt servicing was already consuming roughly a third of state revenue. The war spiked the regional risk premium and drove up the cost of an already-expensive borrowing program. In the months before the fighting started, both Fitch and S&P had already downgraded the sovereign further into junk territory.

But there are positive signs: Manama launched a fiscal consolidation package in December — a 10% corporate tax from 2027, energy price hikes for businesses, a 20% cut in administrative spending — that signaled the government understood the math. And the bond market's verdict has been more constructive than the macro backdrop might suggest.

In June, Bahrain raised USD 1 bn through a 10-year bond issuance — hours after Bahraini defense forces intercepted missiles and drones launched from Iran. Orders crossed USD 3.2 bn, while the yield tightened from initial guidance of 7.5% to 7.125% as demand came in. For a B-rated sovereign to pull off a 3.2x oversubscription while missiles are being intercepted overhead is, at minimum, a market telling you it believes the Gulf support structure holds. The UAE's AED 20 bn currency swap agreement with the CBB, signed in April, is part of that structure — and Dayyat says it's part of what kept confidence in the sector intact through the worst of it.

That's the backdrop against which Mashreq is making its bet, and it comes as several international banks retreat from the country. The retreat isn't a war-era phenomenon: HSBC sold its Bahrain retail franchise last year, long before the conflict began, part of a broader Gulf retail exit. Standard Chartered is now weighing the same move — the bank confirmed it is exploring a sale of its wealth and retail banking business in Bahrain while keeping its corporate and investment banking franchise, the latest step in a multi-year global retail retrenchment that has already taken it out of Jordan, Lebanon, and several African markets.

Neither exit is directly linked to the war, but together they signal a structural thinning of the international banking field in Bahrain, and a widening of the space for institutions that have chosen to stay and build.

Mashreq is one of those institutions, and it continues to view Bahrain as a “strategic market,” as Dayyat tells us. “We are not a short-sighted institution who looks at this event as something that will define our future strategy for the country,” Dayyat tells us.

According to Dayyat, Bahrain’s diversified economy deserves more credit than it gets — hydrocarbons now account for roughly 20% of GDP, with financial services, real estate, tourism, and trade making up the rest.

And that’s Mashreq’s bread and butter. Mashreq leverages its years’ worth of experience in Dubai’s real estate sector, leading initiatives with the Dubai Land Department to make financing easier for the sector, in countries where that sector is a lot less mature. It also has those same learnings from its involvement in trade, financial services, and tourism across the region and throughout the corridors where it operates.

The ability to hold that position credibly rests on a specialization stack that most international banks don't deploy locally — from syndications and structured finance, treasury sales, corporate real estate and contracting finance to sustainability-linked deal architecture. The bank has arranged three large sustainability-linked financing facilities in Bahrain, multi-bn in aggregate, and has been a recurring mandated lead arranger on government bond and sukuk issuances on the sovereign side.

The client framework Dayyat has built around that specialization has also moved away from the traditional playbook. The lender no longer segments its target market by size tier or sector bucket. The framework runs on three criteria: whether a client is part of Mashreq's global network or corridor; whether they contribute meaningfully to Bahrain's Vision 2030 ecosystem — in practice, GREs and companies genuinely moving the economic needle; and whether Mashreq can bring something to the relationship the client can't get elsewhere.

The sectors drawing the most active financing interest are the ones where Mashreq's specialization is most legible. Real estate has been a consistent focus for the past two years, with Mashreq leaning on the same expertise it has built across the broader Gulf market. Energy is an active area — though Dayyat frames it primarily as a GRE play: at the moment, government-related entities are the dominant operators in the sector, which means it fits the framework regardless of the industry label. Trade and manufacturing clients with corridor exposure are a natural fit given Mashreq's network logic. And sustainability-linked financing has become a meaningful part of the book at a moment when the government is actively trying to attract that class of capital to support its diversification agenda.