Banking on Bahrain

							Banking on Bahrain
A report on the conference, supported and attended by the Arab-British Chamber
of Commerce, organised to highlight the opportunities for inward investment in
Bahrain and held on 28 March at the London Stock Exchange.

Bahrain is a leading financial services hub of the Gulf with some of the region’s most
well established banking and insurance institutions. It has long been an attractive place
for UK investors and operates as a foothold into the wider Middle East markets.
The one-day conference, part of a series organised by Financial Times business events
and The Banker magazine, attracted senior representatives from the UK’s thriving
banking and financial sector to hear about the latest developments in the country. A
distinguished line-up of speakers from Bahrain was headed by HE Sheikh Mohammed
Bin Isa Al Khalifa, Chief Executive of the country’s Economic Development Board and a
key figure overseeing the numerous reform initiatives that the Kingdom is undergoing in
the labour market, education, economic and financial services sectors.
A second important contribution was made by H E Rasheed Mohammed Al Maraj, the
Governor of the Bahrain Monetary Agency, who has served in various official positions
over the years, including telecommunications and transport.
Stephen Timewell, editor-in-chief of The Banker, introducing the theme of the enduring
financial partnership between London and Bahrain, stressed the UK’s role as a world
finance centre by pointing out that some 15% of jobs in the capital were now in financial
services.
In respect of recent news from the region’s exchanges and markets, Mr Timewell
admitted that 14 March had not been a great day, but stressed that the fundamentals
remained very strong and the fall could best be regarded as a “correction”.
The Chief Executive of the EDB, Sheikh Mohammed Bin Isa Al Khalifa, giving a
keynote address that ranged over every aspect of Bahrain’s activities as a financial and
business centre, stressed that the main strength of its fast growing economy was its
openness.
Foreign direct investment into Bahrain was growing steadily as a level that outpaces
other countries in the GCC. Current GDP growth stood at 5.6% and the country enjoyed
low inflation. The Kingdom thus ranks high in the Gulf competitive position, the EDB
Chief Executive stated.
Bahrain has the most diversified economy in the region and is the least dependent on oil.
The government was carrying out a strong diversification strategy in which the financial
sector was playing a very important role.
Although possessing a relatively small population of some 600,000, the country had a
proportionately large “middle class”, a successful indication of the fact that the
government had been investing heavily in its people through education. As a result,
Bahrain now boasts the highest literacy rate in the Arab world. Nevertheless, Bahrain was
seeking to increase the size and wealth of its middle class to that of other developed
economies and had set itself a target of raising the number of middle-income families
from 45% to 65% of society. The aim was to double GDP per capita by 2015.
Bahrain’s policy aims, Sheikh Mohammed Bin Isa Al Khalifa explained, were to
continue with its reforms in all spheres, to share the benefits of the country’s wealth
among its people and to expand the economy. As a small country, it was aware that it
could not achieve these aims alone and understood also that it must remain a “high value”
model economy. Bahrain was making a priority of training its people to be productive
actors in the economic sphere, in recognition that it had to compete in the global
economy and that a well-trained, highly skilled workforce was a valuable asset for the
country.
As part of what he described as a “three-pronged approach for the reform agenda”, the
local and international private sector were regarded as the “engine of growth”.
In order to assist the private sector, the government was looking at reducing barriers to
growth, by improving access to capital, making land reform a priority issue, cutting back
on red tape and introducing various sector privatisation initiatives. Thus, the role of
government was as a regulator of the economy and less of an operator, the EDB Chief
Executive said. Thus by increasing the competitiveness of the Bahrain economy, the
objective was to triple the current rate of productivity and increase GDP growth to 9%
per annum.
The “asset pool” of skilled labour was one of the reasons why outside investors were
looking to Bahrain. In addition, the Kingdom was a place where consumer demand was
increasingly sophisticated, providing yet another attraction for the investor.
The region’s banking sector was at present booming and was predicted to continue into
the near future, Sheikh Mohammed Bin Isa Al Khalifa stated. The region was
experiencing a growth in corporate bond issues, a growth in registered stock market
investors and private equity funds. Consumers were becoming increasingly sophisticated
in their demands for financial services and products.
In addition, Bahrain like the Gulf more generally currently had many mega investment
projects under development, such as the Bahrain Financial Harbour, the Durrat Al
Bahrain and the Bahrain Business Bay. Elsewhere, the King Abdulla Economic City in
Saudi Arabia, the Pearl of the Gulf in Qatar and the Burj Dubai could be cited as
important mega projects that were creating further opportunities for investors.
The $1.4 billion Bahrain Financial Harbour, it should be pointed out, will become a
modern financial city and the new home of the Kingdom’s financial community, headed
by the Bahrain Stock Exchange, along with luxury hotels, residences, leisure and
entertainment facilities. Similarly, the $1.5bn Bahrain Business Bay will be an impressive
business and residential focus attraction around the Manama waterfront. These are
important developments for Bahrain as tangible examples of its dynamism and ability to
attract foreign investors.
Specific Opportunities in the Bahrain Financial Sector
The conference delegates heard that the following specific areas were worth exploring for
considerable investment potential at present and in the future in Bahrain:
-Retail banking
-Consumer finance
-Project finance
-Trade finance
-Islamic banking (for both the private and corporate client)
-Equity and debt markets
-IPO issuances
-Private banking
-Mutual funds
-Private equity
-Institutional asset management
-Retail insurance
-Commercial insurance
-Re-insurance

Solid Regulatory and Supervisory Regime
The governor of the Bahrain Monetary Agency (the central bank) H E Rasheed Al-Maraj,
outlined in great detail the impressive features of the country’s financial infrastructure.
He said that Bahrain had built sound financial institutions over a 30-year period on the
basis of prioritising international regulatory standards through close relations with the
Bank of England and the UK’s Financial Services Authority. It now had a simple but
effective regulatory regime characterised by its openness and transparency which enabled
the global financial community to have full confidence in how Bahrain’s financial
institutions were operating in overseeing business activities. The IMF and other
international financial bodies have commended the high standards of its regulatory
framework.
As a result of establishing this sound framework, Bahrain was now home to over eighty
non-Bahraini banks and was in addition a centre for Islamic finance with 26 Islamic
banks located there, making it the largest concentration of Islamic financial institutions in
the world, the BMA head stated.
The insurance sector was also impressive in scale with 148 licensed insurance entities at
present operating in Bahrain.
The outlook for growth in the financial sector was highly encouraging. Bahrain’s banking
sector had seen profits rise by 20% over the 2004-2005 period with growth at around 5%
since 2004. There had also been double digit growth in areas like life premiums over
recent years and the expansion of new activities such as takaful.
Other speakers included Esam Janahi, Chief Executive of the Gulf Finance House, a
leading provider of Islamic banking services and products, who has been at the forefront
in infusing innovation into the Islamic banking sector over recent years; Vivian Jamal,
Director of Investments at the Bahrain Economic Development Board, who examined
some of the wider attractions for the investor in terms of zero tax policies, strategic
geographical location and liberal social environment.
Testimonials from some leading professionals with long experience of working in
Bahrain rounded off the proceedings.
For further information about investment opportunities in Bahrain contact the
Bahrain Economic Development Board.
www.bahrainedb.com