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Mon 15 Nov 2010 09:12 AM

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Bahraini banks need to look at mergers – officials

Business model must change in wake of financial crisis, 'I would favour consolidation' - Sheikh Mohammed

Bahraini banks need to look at mergers – officials
Bahrain World Trade Centre, Bahrain economy, Bahrain skyline, Bahrain business

Bahrain’s finance institutions should consider consolidation as an option amid an overcrowded market, two of the country’s most prominent executives have said.

“I am one of these people who would favour consolidation. Let people grow and compete globally, absolutely,” Sheikh Mohammed bin Essa Al Khalifa, CEO of Bahrain’s Economic Development Board (EDB) told Arabian Business.

“Evolution in the industry is always good. I would say given that what’s going on globally with Basel 3 and all of that, in some cases I would say yes, consolidation will create more robust institutions.”

Sheikh Mohammed added that consolidation was even more important if Bahraini banks intended to compete regionally and globally, rather than just within the Gulf state.

The CEO’s words were echoed by a senior official at the Central Bank of Bahrain (CBB), who told Arabian Business that the country’s banks were learning lessons from the financial crisis.

“Wholesale banks – from what we are seeing and discussing – are reacting either by raising capital, or asset sales, or thinking of consolidation arrangements,” said Khalid Hamad, the CBB’s executive director for banking supervision.

“And they are also thinking about changing their business models. This is one of the great lessons – the model was not good enough.

“Diversification is another issue; several banks were focused on real estate development and financing that sector. That didn’t help much during the crisis because most of the projects were put on hold at that time.”

Hamad also said that the previous lack of diversification had led Bahraini banks to consider looking for opportunities in other sectors, including education, healthcare, SMEs and tourism.

There are currently 133 finance institutions in Bahrain, according to the CBB. Of those, there are 76 wholesale banks and 30 retail banks.

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