Banking
The region’s most advanced, transparent and respected regulatory regime
The Central Bank of Bahrain
The sector is supervised by the Central Bank of Bahrain, which since 2002 has functioned as the single regulator for the entire financial system. This enables businesses in Bahrain to operate throughout the Kingdom with no ‘free zone’ restrictions.
The Central Bank of Bahrain is internationally recognised as the most successful monetary authority in the Arab world in terms of regulation, innovation, non-discriminatory treatment, licence management, and operational efficiency, whose regulations has created a business friendly environment to international standards.
Other Regulators
Bahrain is the home to regulatory bodies for Islamic finance, such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the Liquidity Management Centre (LMC) and the International Islamic Financial Market (IIFM).
Bahrain is part of the Financial Action Task Force (FATF) through the full membership of the Gulf Cooperation Council in the FATF, and is committed to the implementation of all international standards in this area. Bahrain has implemented international measures to criminalise the financing of terrorism and associated money laundering. The FATF’s 40 Recommendations provide a complete set of counter-measures against money laundering covering the criminal justice system and law enforcement, the financial system and its regulation, and international co-operation. Bahrain has also ratified and implemented the FATF’s 9 Special Recommendations on terrorism financing, these recommendations set out the basic framework to detect, prevent and suppress the financing of terrorism and terrorist acts.
Financial Risk Ratings
The Economic Intelligence Unit (EIU) has continuously given a B rating to Bahrain for Financial Risk (on a scale of A-E where E=most risky). Bahrain sits in the top third (scores 33/100), not far behind Germany’s and UK’s rating (25), and surpasses the scores of the UAE, Kuwait, Saudi Arabia and Qatar.
The EIU’s Financial Risk Ratings are based on the country’s risk of a major devaluation, the depth of financing in its local market, legal and regulatory standards, tax risks, the liquidity of the country’s stock market, and the risk of a systemic crisis in its banking sector.
When calculating the score, the EIU examines country-specific sources such as central bank reports, statistical yearbooks and country websites. Other international sources used include publications from the UN, CIA, IMF, World Bank, Heritage Foundation, International Institute for Management Development, International Labour Organisation, US Social Security Administration, World Economic Forum, Interpol and the US Commerce Department.
The sector continues to grow strongly
Bahrain’s banking system has experienced annual average growth rates of 18 per cent over the past period 2006-2008, partly fuelled by growth in liquidity from oil revenues in the region, which has been the platform for banks providing capital for both financing and re-investment within all sectors of the Bahrain economy, and to specific projects in other countries. The banking sector has further benefited from annual growth of around 20% in funds available from high net worth individuals in the region (CBB, June 2008).
Bahrain’s banking sector comprises both conventional and Islamic banking and is the largest segment within the Kingdom’s finance sector.
A key feature of the banking system in Bahrain is the rich variety of locally incorporated and international conventional and Islamic banks that operate in the Kingdom. Between them, these banks provide professional services and products to retail, wholesale and private wealth clients. Several locally incorporated banks have either branches or subsidiaries in other countries throughout the Middle East, Far East, Africa, Europe and the USA. Overall, the total consolidated balance sheet of the banking sector increased by US$17 billion, to reach US$269.5 billion at the end of June 2008, compared with $252.5 billion at the end of March 2008.
There is a growing need for venture capital and other sources of innovative financing to encourage and respond to the rise in entrepreneurs. The increase in private wealth has fuelled demand for private and retail banking services as more personal wealth remains in the region, an affluent middle class continues to grow, and customer needs become ever more sophisticated.