« Prev Next »

1

3

E-mail Article

Printer Friendly

Share Article

Braving the storm

Bahrain’s relaxed ownership laws and a firm but flexible regulatory environment have encouraged foreign banks to establish a presence and local banks to flourish. However, the sector’s exposure to foreign investment could soon present a significant challenge.

The Gulf is rapidly discovering that its vast oil wealth and economic growth are not immune to the global slowdown. But the tiny island state of Bahrain, with a population of just 1.2 million, is hoping its diversified economy and strong banking sector will see it through the storm.
“Bahrain has a formidable reputation in terms of regulatory environment [as well as] a wide range of banking services in everything from project finance to personal banking,” says Oliver Cornock, regional editor of the Oxford Business Group.

Yet Bahraini banks have continued to post losses. Ahli United Bank, the country’s largest bank by market value, saw declines of 9 percent to $68.38m in the third quarter compared to the same period in 2007.

Arab Banking Corporation, the country’s third biggest lender, was last month forced to reassess its business model to focus on retail banking after it posted third quarter losses of more than $194m as a result of being directly hit by the US subprime crisis.

“The largest part of Bahrain’s economy is the banking sector, which is bigger than its oil and gas sector and accounts for more than a quarter of its GDP, so any downturn in activity in that sector will have quite an impact on the wider economy,” warns Jane Kinninmont, an editor and economist at the Economist Intelligence Unit in London.

“Bahrain stands at a much higher risk threshold than Saudi Arabia or Qatar,” agrees Raghu Mandagolathur, head of research at Kuwaiti investment bank, Markaz.

As the smallest Gulf Arab state and the Middle East’s smallest producer of oil by volume, Bahrain has long recognised its necessity to create a diverse economy and started to do so as far back as the 1970s. Today banking is one of its core industries, with oil accounting for just 15 percent of its gross domestic product.

No Comments