No big banks leaving Bahrain: official

No big financial institution is planning to leave Bahrain due to political unrest, a government official said on Tuesday, seeking to soothe any concerns that the ongoing political crisis would hurt Bahrain's status as a financial hub.

Bahrain saw the worst sectarian unrest between its majority Shi'ite population and its Sunni rulers since the 1990s, resulting in the death of at least 13 protesters and four police before Bahrain declared martial law last month and invited troops from Sunni Gulf neighbours to help quell the unrest.

The clashes as well as the heavy-handed security crackdown that followed have resulted in the Formula One Grand Prix opening being cancelled, conferences moved and bankers doing deals elsewhere, raising fears that financial institutions could move their offices to the more stable Dubai.

"We confirmed with them that the vast majority of banks are staying, they're all committed to Bahrain, they recognise the business in Bahrain," Boyd Winton, director for financial services at Bahrain's Economic Development Board (EDB) told a news conference.

The EDB sets Bahrain's economic policies and is tasked with attracting international business to Bahrain to diversify the economy away from oil. The financial industry accounts for about 25 per cent of Bahrain's GDP.

Winton said only four financial services institutions had told the government they planned to leave. This included two firms who maintained only a representative office with one staff and an asset management company that he said had long planned to leave by the end of the year.

But bankers say lenders will avoid officially closing down their offices and instead will quietly move some staff to Dubai to prevent their relationships with the Bahraini government from being damaged.

Bahrain as a financial hub had been severely hit before the unrest. Its investment firms posted steep losses since a regional property bubble burst in 2008 ended their business model of arranging financing for real estate projects. They have failed to develop new business since.

Bankers say Bahrain is struggling to attract new financial businesses to the island kingdom to compensate for the jobs slashed at these companies over the past two years, and that newcomers to the Gulf Arab region are likely to choose Dubai as their regional office due to the unrest.

Banks in Bahrain are now also expected to be hit by higher volumes of loan defaults as the unrest has severely hurt the cash-flows of their corporate loan customers in Bahrain.