A new regulation capping Bahraini banks' exposure to real estate markets will come into effect on August 1, a spokeswoman for the Central Bank of Bahrain (CBB) said on Thursday.

Banks in the Gulf invested heavily in regional property markets during a six-year oil boom, but the bursting of the real estate bubble in Dubai late last year raised concerns about their exposure.

The CBB said in the regulations posted on its website that banks in Bahrain have increased their real estate exposures over the past few years and that it is taking action to contain these exposures and encourage risk diversification.

The new regulations put the maximum share of real estate financing that Bahrain's banks can hold in their gross financing portfolio at 30 per cent.

Bahraini retail banks in June had 26.9 per cent of their outstanding loans in the construction and retail sector, their largest concentration in one sector, and 5.9 per cent of loans were personal loans secured by property mortgages, according to central bank data.

The regulations also cap banks' real estate investments at 40 percent of their capital base. – Reuters