Banking in Bahrain: Analysis of Bahrain Banking Sector

The major impact on the banking sector of the unrest has been the downgrading of Bahrain’s credit rating by Standard & Poor, which lowered the country’s rating from A/A1 to A/A2, and put on a CR/N, credit watch/negative list. Fitch and Moody’s also downgraded their ratings, but S&P later removed the CR/N listing.

Analysis and Outlook of Bahrain Banking Sector in 2011

Abdul Karim Ahmed Bucheery, chairman of the Bahrain Association of Banks, sees several short-term negatives from this, because “it means that the cost of borrowing for the country will rise as well as that for the banks operating in the country. So basically: increasing the cost for us. This will mean higher costs in our lending and of course the whole cycle will lead to an increasing burden on the clients and the banks.”

Opportunities for Banks in Bahrain and Risk of Crisis in Bahrain Banking Sector

Nevertheless, Bucheery insists, there have been several positive developments,

“such as the clear confidence in the country’s banking system even during the peak of the crisis. For instance, the liquidity of banks did not suffer in Bahrain. I am given to understand that, now, most of the commercial banks are indeed suffering from high liquidity and the reason is because the customers are still confident in depositing their cash into the banking system.  Also, a good amount of liquidity came from outside of Bahrain and mainly from neighboring countries, so this has really reflected the confidence in the Bahrain banking system…. As I said, there will be short term implications for sure, but in the long run the country will be much stronger and it will be able to manage and plan in a much better way…. I firmly believe that the country will definitely become much stronger in the future.”

Opportunities for Banks in Bahrain and Risk of Crisis in Bahrain Banking Sector

There has also been much concern expressed in the media that Bahrain might lose its position as the financial hub of the Middle East as a result of the unrest. But Bucheery is confident that “I do not think that Bahrain will easily lose its brand or position as the financial hub for this part of the world.” Although one bank, Credit Agricole, did announce that it was leaving because of the crisis, Bucheery was gratified to learn, when he met with other banks’ officials, that their thinking was the exact opposite:

“To the contrary,” Bucheery recalls, “most of the foreign banks emphasized their strategies and plans to stay because, if foreign businesses decide to run away as crises hit a particular country, you will see no foreign firms operating in any country other than their home land as crises will continue to occur forever.”

Consolidation of Bahrain Banking Sector Imminent According to BMI Bank

About the current unrest, Bucheery is laconic: “Bahrain, like any other country has gone through a crisis but that does not mean that this is the end for its banking industry.”

Bahrain Banking Analysis and Outlook for 2011 by Citibank

Bahrain has 411 banks and other financial institutions, which includes 77 wholesale banks, 30 retail banks, and 27 representative offices. In addition, it has 27 Islamic banks. In January 2011, total employment in the financial sector was more than 14,000, with about 8,800 in banking, and the remainder in insurance, money brokering, and other financial services.

Investment Banking Collapse in Bahrain and the GCC