Solid Platform
by mahmood on 21/09/07 at 5:42 pm · email · print
A test of the stability of Bahrain’s financial sector has been the recent global crisis prompted by the meltdown in the US sub-prime mortgage market. While tremors are still being felt around the world, with the latest victim being the British lender Northern Rock, which has been caught short in a run on deposits by clients even after the Bank of England provided emergency funding in mid September, Bahrain has emerged unshaken.
According to Rasheed Mohammed Al Maraj, the governor of the Central Bank of Bahrain (CBB), this is because most local companies have focused their core business activities in the Gulf region, though he added that the CBB was monitoring the situation and was prepared to act to mitigate any adverse affect on the local market.
Prime Minister Sheikh Khalifa bin Salman Al Khalifa met with Al Maraj on September 17 and predicted a new era for the country’s finance and banking sector, built on the back of past successes, future developments and present day resilience.
“Banks and financial firms in Bahrain are increasing due to the constant revamp of the financial sector as well as Bahrain’s sound reputation in the international banking arena,” said the prime minister.
R Lakshmanan, the chief executive of Bahrain-based mortgage lender Sakana Holistic Housing Solutions, is another who believes that the sound regulatory platform put in place by the government and the CBB has helped insulate the kingdom’s financial sector from the ripple effect of the sub-prime crisis, and reinforce its position as a regional beacon for the industry.
“The Central Bank of Bahrain is quite stringent about how institutions lend to customers and there are lots of rules and regulations which work quite well in the current situation where there is generally a credit boom and a consumer boom with the economies of the GCC doing well,” he told the local press on September 16.
Another advantage Bahrain appears to be gaining in the race to become the preferred financial centre in the region is the relative stability of rents and costs associated with establishing an office.
One of Bahrain’s main rivals as a business and banking centre in the Middle East is Dubai, with the emirate’s government having spent lavishly to attract foreign companies in the finance sector to shift their operations to one of the new multi-billion dollar business parks and commercial complexes springing up.
While the glittering allure of Dubai has prompted many firms to move either their regional or, in some cases, global headquarters to the Dubai International Financial Centre (DIFC), a downside situation is now becoming apparent.
Hirsham Farouk, an official with Grant Thornton, the management company running Forsyth funds, said that the high costs of setting up shop in Dubai, including rents and visas for expatriate workers, were a major drawback.
“These two factors put on costs so the returns take longer than expected,” he said.
Though Bahrain is also experiencing rising rents, the increases are nowhere near on the scale of those in Dubai, and the kingdom’s longer experience in hosting foreign companies and streamlining of investment and business registration processes have helped keep costs down.
However, one of the very strengths of Bahrain’s financial sectors could also be its weakness. Having been a pioneer of Islamic banking, and having laid much of the groundwork of the system’s acceptance globally, Bahrain is now facing stiff competition from other financial hubs, with both London and Kuala Lumpur challenging the kingdom’s long-standing dominance.
But Bahrain’s financial sector is by no means dependent on Islamic banking. While a major pillar of the industry, Islamic banking still represents only a part of a much larger picture. CBB figures show that, as of the end of 2006, Islamic banks in Bahrain had assets of $12bn. Though sizeable, this total was only a fraction of the $187.3bn of assets controlled by the kingdom’s banking sector as a whole.
OBG – Bahrain Volume 121 – 21 Sept, ’07
