(Adds details of retail bank assets, context, analysis)
By Andrew Torchia
DUBAI, Sept 24 (Reuters) - Net foreign assets at Bahrain’s central bank, an indication of its ability to defend its currency against market pressure, rebounded in August, the central bank said on Monday.
The assets rose to 734.2 million dinars ($1.95 billion) last month from 499.4 million dinars in July, which was a one-year low.
Net foreign assets at Bahraini retail banks increased in August but remained sharply negative, at minus 1.07 billion dinars against minus 1.17 billion in the previous month.
Foreign assets have been under pressure as Bahrain runs fiscal and current account deficits fuelled by low oil prices. The rebound in reserves may reassure investors that Bahrain can smoothly redeem a $750 million Islamic bond due this November.
The central bank did not give a reason for the rise in the reserves, but analysts believe Bahrain’s diplomatic allies in the Gulf — Saudi Arabia, the United Arab Emirates and Kuwait — have been quietly providing it with infusions of hard currency to prevent a dangerous decline.
For example, Bahrain has made private placements of $500 million bond issues at least twice this year, with at least some of those bonds going to institutions from the three wealthy Gulf states, bankers in the region say.
Their support is expected soon to become public, as the three states announced in June that they were in talks on a major aid package for Bahrain that would be linked to its progress in reforming its finances.
Sources familiar with the talks told Reuters this month that the talks were making progress and an agreement could be announced within weeks.
The Bahrain central bank usually releases foreign reserves data for each month separately but did not do so for July; instead, it released the July figures at the same time as it published the August numbers. It did not explain why. (Reporting by Andrew Torchia Editing by Matthew Mpoke Bigg)