Strong Growth Year For Financial Services In Bahrain

by Carla Johnson, Investors Offshore.com, London

25 January 2008

2007 was another strong growth year for Bahrain’s expanding financial sector, according to the Central Bank of Bahrain.

Bahrain continued to attract new financial institutions during 2007, while the existing industry saw its assets surge to record highs, the Bank revealed.

The Central Bank of Bahrain (CBB) is also the Kingdom’s financial services regulator, and revealed that it had continued to pursue its goal of advancing the country’s financial services industry, encompassing the banking sector, insurance and the capital markets.

As a central bank, the CBB is responsible for ensuring monetary and financial stability in Bahrain and is continuing the long-standing fixed exchange rate policy against the United States dollar, first established in 1980.

The CBB explained that: "This has provided Bahrain with a high degree of economic and price stability, while encouraging the sound growth of the national economy, which has underpinned the growth and development of the country’s flourishing financial services industry."

As the country’s financial services regulator, the cornerstone of CBB’s policy continues to be the implementation of international best practice in all aspects of financial supervision.

The Kingdom’s financial services industry has surpassed the oil sector as the largest contributor to the national gross domestic product (GDP). The sector’s contribution to GDP in real terms grew 8.2% in 2006 to BD1.05b (US2.79b), which represented 25.5% of the total GDP of BD4.1b (US10.9b).

The CBB further announced that: "The expansion of the financial services industry is also evidenced by the continued growth in financial sector employment. During 2006, the industry, comprising banking, insurance and the capital market, added 1,534 new jobs, compared with 677 new jobs in 2005. This raised employment in the financial sector to 9,753 in 2006, from 8,219 in 2005. The 2006 employment numbers represent a year- on-year increase of 18.7% and a 40% increase over the past three years."

It continued: "Bahrain enjoys a foreign currency debt rating of ‘A’ from international rating agencies Standard & Poor’s (S&P) and FitchRatings."

"It is no surprise then that Bahrain retains the region’s largest critical mass of financial institutions, with over 404 licensees (at November-end 2007), representing a broad range of international, regional and local players."

"As the Middle East region’s most mature financial centre, Bahrain continues to attract new financial institutions. By November-end 2007, the CBB had issued 37 new licenses, compared with the 2006 full-year total of 33. Major international financial institutions licensed by the CBB during 2007 included such names as Allianz, Hannover Re, Global Banking Corporation (GBCorp), NCB Capital, National Bank of Kuwait Investment Services (NBKIS), Islamic Bank of Asia, Bank of Baroda, Pioneer Global Investments and Asia Capital Reinsurance (ACR)."

The Bank went on: "Bahrain’s attractiveness as a jurisdiction of choice for financial institutions has been further bolstered with the implementation of a new, modernized licensing framework for the financial services industry."

"License categories are now defined by regulated activity, rather than institution type, making the new framework flexible and inclusive and able to respond to market changes. The five basic licensee categories under the integrated new framework are: Conventional Banking, Islamic Banking, Insurance, Investment Business and Specialized Licensees."

The new changes to the licensing system have been complemented, according to the CBB, by a comprehensive package of regulatory reforms aimed at ensuring that regulations governing financial institutions remain fully compliant with the latest international standards.

The CBB Rulebook, issued progressively since 2004, will ultimately comprise five separate volumes corresponding to the five licensing categories. Rulebooks pertaining to conventional banks (Volume 1), Islamic Banks (Volume 2), Insurance (Volume 3) and Investment Business (Volume 4) have already been issued, while work is underway on Volume 5, governing Specialized Services, and on a further rulebook governing capital market regulations.

Another major development for the financial services industry has been the establishment of two separate CBB tribunals for expediting the resolution of disputes arising from the conduct of financial business.

The Central Bank concluded: "Bahrain’s banking system continues to surge ahead, with year-on- year growth averaging 25% in the past two years."

"After crossing the US200b mark in May 2007, the consolidated balance sheet of Bahrain’s banks stood at an all-time high of US233.2b at October-end 2007, an increase of 33% over the same time in 2006."

"The consolidated assets of Bahrain’s retail and wholesale banks has grown by nearly one-third over the past year alone and more than doubled in the last five years."

"The CBB is committed to continuing the sterling work of the past 35 years in maintaining a sound and stable financial system and in fostering the continued advancement of Bahrain’s financial services industry."

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