The Euromoney Bahrain Conference, Financial Sector Development Strategy
Manama, Bahrain: 05 March 2013
Keynote Address by: H.E. Rasheed M. Al-Maraj, Governor, Central Bank of Bahrain
Your Excellencies, Distinguished Guests, Ladies and Gentlemen:
First, I wish to thank the organizers for providing me with the opportunity to give this keynote address at this conference. Over the next few minutes I shall outline some of the actions the CBB has taken to help the financial industry in Bahrain to develop in the period since the start of the Global Financial Crisis in 2007. I shall concentrate on two main areas; regulatory enhancements and consolidation.
Within the regulatory framework, Basel III continues to be a major topic of discussion throughout the financial industry. However most stakeholders recognize that Basel III is a minimum set of standards, and the CBB is one of many regulators which are in the process of adopting local practices which will impose additional requirements to deal with local risks. The end result will be banking systems which are significantly more robust, and which are much better equipped to support economic growth than they were at the end of 2007.
There is no longer any such thing as a 'simple' bank in today’s world. Traditional lines of business, such as retail and commercial banking, are complex entities. Therefore capturing the risk profile of these businesses in a single measure of financial soundness is extremely difficult.
Basel III, like most regulations, is about trade-offs. It raises many challenges to finding the optimal point for any regulatory proposals. For example the CBB must try to ensure that all banks have an adequate level of capital relative to their risk profile. Linked to this is the need to provide a measure of capital that is realistic and comparable over time and between banks. Most observers agree that comparability provides the confidence that the capital requirements are reasonable. Achieving that comparability to the satisfaction of all stakeholders is very challenging.
To address these challenges, the CBB has, as normal, initiated a programme of communicating closely with our licensees about how Basel III will affect their business. These negotiations cannot be concluded overnight. The outcomes are crucial to the sustainability of the financial sector, and therefore to the economic stability of the country. That is why the CBB has embarked upon this programme of discussions at this stage. The early signs are encouraging insofar as each stakeholder understands the importance of what we are trying to achieve, and as the dialogue proceeds will ultimately find a workable, sensible, way forward.
The CBB has also done a great deal to strengthen the regulatory framework in the post-crisis period. It has done so in consultation with our banks. This is the foundation of the successes of our regulatory framework over the years, and we shall continue to enhance and improve that framework in future.
In parallel with Basel III the CBB has implemented a number of improvements to the way in which risk is managed. Our Rulebook has emphasized the need for, and benefits of, a robust risk framework. We continue to enhance the professional standards of those who manage risk within our banks through qualifications and other courses delivered by the BIBF. We have also implemented changes to our Rulebooks based on various Basel publications, such as the changes to the market risk capital charges under Basel 2.5.
Moreover, the role of corporate governance continues to be enhanced, including regulations related to capital adequacy and disclosure. All of these are positive initiatives, and have been at a time when the Bahrain financial sector has witnessed the beginnings of what is anticipated to be an increasing degree of consolidation over the coming years. Three local banks have recently merged; and the Ithmaar Bank consolidation with First Leasing Bank has been completed. These are major and important developments in the financial sector landscape, and other mergers and acquisitions are under discussion. The CBB plays a major role in this respect, including facilitating constructive dialogue between relevant parties. Mergers and acquisitions of this nature provide stronger banks, which in turn are more able to absorb larger deals, and – critically – develop a much stronger base with which to absorb financial and economic downturns. We shall continue to work with the industry in this respect.
In closing, I wish you all a very enjoyable conference, and I look forward to the continued growth and development of the Bahrain financial industry for many years to come.