Bahrain's Banking Scene: A Comprehensive Overview

Bahrain's banking system is made up of both conventional and Islamic banks, with the former outnumbering the latter. As of the end of September 2020, there were 376 financial sector institutions in the country, including 31 retail banks, 62 wholesale banks, 17 branches of foreign banks, and 8 representative offices of banks. The consolidated assets of the banking sector exceed US$160 billion, with the top banks in the country being Ahli United Bank, Gulf International Bank, Arab Banking Corporation, and Al Baraka Banking Group.

Bahrain's banking system includes both conventional and Islamic banks

The country has long been recognised as a global leader in Islamic finance, playing host to the largest concentration of Islamic financial institutions in the Middle East. These institutions offer a range of Sharia-compliant products and services, including retail banks, wholesale banks, Islamic windows of conventional banks, Takaful companies, and Re-Takaful companies.

The growth of Islamic banking in Bahrain has been remarkable, with total assets increasing from US$1.9 billion in 2000 to US$32.7 billion as of July 2020, an increase of over 17 times. The market share of Islamic banks has also grown significantly, from 1.8% of total banking assets in 2000 to 15.3% in July 2020. This growth has been supported by factors such as an open market economy, stable and prudent macroeconomic and fiscal policies, and a credible regulatory framework.

The Central Bank of Bahrain has played a pivotal role in the introduction of innovative Islamic financial products, such as Islamic securities (Sukuk). Additionally, the country is home to several global organisations that are central to the development of Islamic finance, including the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the International Islamic Financial Market (IIFM).

Bahrain's Islamic banking system offers a range of Sharia-compliant products and services, catering to the diverse needs of its customers. The system has contributed to the country's emergence as a leading financial centre in the region, attracting numerous foreign banking organisations.

As of 2020, there were 31 retail banks, 62 wholesale banks, 17 foreign bank branches, and 8 representative offices in the country

As of 2020, Bahrain's financial sector was thriving, with a total of 376 financial institutions in the country. This included a robust mix of 31 retail banks, 62 wholesale banks, 17 foreign bank branches, and 8 representative offices. These numbers highlight the country's position as a prominent financial hub in the region.

Retail banks in Bahrain play a crucial role in serving individuals and businesses with their day-to-day banking needs. With 31 retail banks, customers have a wide range of options for their personal and commercial transactions, savings, loans, and other financial services. These banks cater to a diverse customer base, from small businesses to large corporations, providing the necessary financial support for the country's economic growth.

On the other hand, wholesale banks in Bahrain focus on providing services to other businesses rather than individual consumers. With 62 wholesale banks, Bahrain offers a comprehensive range of services such as asset management, investment banking, and corporate banking. These banks facilitate transactions between businesses, support trade and project finance, and contribute to the country's economic development by fostering inter-business relationships.

Foreign bank branches also play a significant role in Bahrain's financial landscape. With 17 branches of foreign banks, the country attracts international financial institutions and provides services to a global clientele. These foreign banks bring their expertise and networks to Bahrain, further enhancing the country's reputation as a regional banking hub.

Additionally, the presence of 8 representative offices in Bahrain underscores the importance of the country's financial sector. These offices act as liaisons between their parent banks and local businesses or customers. They provide information, facilitate transactions, and promote the services of their respective banks, contributing to the overall accessibility and reach of the financial sector.

The diversity and abundance of banks in Bahrain, as reflected in the numbers from 2020, showcase the country's appeal as a financial centre. This diverse financial landscape has been a key driver in establishing Bahrain as a prominent player in the region's banking industry, attracting both local and foreign investment.

The Central Bank of Bahrain regulates the banking industry

The Central Bank of Bahrain (CBB) is the central bank of the country and was established by the Central Bank of Bahrain and Financial Institutions Law in 2006. It is a public corporate entity that is independent of the government's administrative and financial regulations. The CBB is responsible for maintaining monetary and financial stability in the Kingdom of Bahrain and is the single integrated regulator of the country's financial industry.

The CBB's duties and powers include:

• Issuing currency in accordance with the law.
• Liaising with the Ministry of Finance and other relevant bodies to draw and implement monetary policies.
• Taking measures to counter adverse economic conditions.
• Regulating, developing, and licensing financial services.
• Acting as a banker and financial agent to the government.
• Managing the government's reserves of gold and foreign currency.
• Facilitating and encouraging innovation in the financial services industry.
• Safeguarding the interests of customers of financial institutions.

The CBB has played a crucial role in the growth of Bahrain's banking sector, which includes both conventional and Islamic banks. As of July 2020, the sector's assets stood at over US$212 billion, more than five times the country's annual GDP. The CBB has supported the industry's growth by fostering an open market economy, stable macroeconomic and fiscal policies, and a robust regulatory framework. As a result, Bahrain has established itself as a regional banking hub, attracting numerous foreign banking organisations.

The CBB has also been instrumental in the development of Islamic finance, introducing innovative products such as Islamic securities (Sukuk). It established a separate regulatory framework and a comprehensive prudential and reporting mechanism specifically for the Islamic banking segment. The CBB's initiatives, such as the establishment of the Waqf Fund, have contributed to the remarkable growth of Islamic banking in the country.

The CBB's efforts have cemented Bahrain's position as a leading financial centre in the region, known for its stable and prudent macroeconomic policies and well-qualified workforce. The CBB continues to play a pivotal role in regulating and developing the country's banking industry, ensuring monetary and financial stability.

The country's banking sector assets were over US$212 billion as of July 2020

As of July 2020, the total assets of Bahrain's banking sector exceeded US$212 billion. This figure is more than five times the country's annual GDP, highlighting the significance of the banking industry to Bahrain's economy. The sector comprises both conventional and Islamic banks, with the latter accounting for US$32.7 billion in assets as of July 2020, a remarkable growth from US$1.9 billion in 2000.

The Central Bank of Bahrain has played a pivotal role in the development of the country's banking sector. By introducing a separate regulatory framework and comprehensive prudential and reporting mechanisms, the Central Bank has fostered the growth of Islamic banking. This dedicated framework covers various aspects, including licensing requirements, capital adequacy, risk management, business conduct, financial crime, and disclosure/reporting requirements. Additionally, the Central Bank has been instrumental in establishing the Waqf Fund, which offers specialised programmes and initiatives to support the development of Islamic finance.

Bahrain's banking sector has benefited from a favourable economic environment, including an open market economy, stable macroeconomic and fiscal policies, and a credible regulatory framework. These factors have solidified the country's position as a prominent regional banking hub, attracting numerous foreign banking organisations. The sector's total of 376 financial institutions, including 31 retail banks, 62 wholesale banks, and 17 branches of foreign banks, contribute significantly to Bahrain's financial landscape.

The Islamic banking sector in Bahrain is well-established, with 6 retail banks, 13 wholesale banks, 9 Islamic windows of conventional banks, 6 Takaful companies, and 2 Re-Takaful companies. Bahrain is also a leader in issuing Islamic securities (Sukuk), offering both short-term and long-term instruments. The market share of Islamic banks has grown significantly, increasing from 1.8% in 2000 to 15.3% in July 2020. This expansion can be attributed to the Central Bank of Bahrain's clear vision and approach, as well as the establishment of comprehensive regulatory frameworks that address the specific needs of Islamic banking and insurance.

Bahrain is recognised as a global leader in Islamic finance, with the largest concentration of Islamic financial institutions in the Middle East

Bahrain is recognised as a global leader in Islamic finance, with the highest concentration of Islamic financial institutions in the Middle East. The country's banking system consists of both conventional and Islamic banks, with the latter playing a pivotal role in the emergence of Bahrain as a leading financial centre in the region. As of July 2020, the banking sector assets stood at over US$212 billion, more than five times the country's annual GDP.

The growth of Islamic banking in Bahrain has been remarkable, with total assets increasing from US$1.9 billion in 2000 to US$32.7 billion as of July 2020, an increase of over 17 times. This growth can be attributed to various factors, including the clear vision and approach of the Central Bank of Bahrain, which introduced a separate regulatory framework and a comprehensive prudential and reporting mechanism specifically tailored for Islamic banking and insurance.

Bahrain is also home to several prominent global Islamic standard-setting organisations, including the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the International Islamic Financial Market (IIFM), and the General Council for Islamic Banks and Financial Institutions (CIBAFI). These organisations play a crucial role in developing and issuing standards for the global Islamic finance industry, ensuring its compliance with Shari'ah principles, and promoting ethical and moral values in financial transactions.

The Central Bank of Bahrain has been instrumental in introducing innovative Islamic financial products, such as short-term government sukuk and long-term instruments. Sukuk has been a compelling factor in the growth of Islamic finance in Bahrain, with the country being the first to allow its central bank to issue sukuk. The issuance of sukuk has surpassed $1 trillion globally since its introduction, and Bahrain strictly regulates the industry to guarantee transparency and trust among investors.

In addition to its strong regulatory framework and standard-setting organisations, Bahrain also boasts a thriving Takaful industry, with 6 Takaful firms and 2 Retakaful firms currently operating in the country. The Central Bank of Bahrain has implemented a new Takaful model to enhance the solvency status assessment of these firms. As a result, Bahrain has established itself as the largest Islamic finance market in the region, with total Islamic banking assets of USD 34.6 billion as of 2021.

The country's advanced environment and expertise in Islamic finance make it an attractive destination for both established financial institutions and emerging FinTech ventures seeking to offer Shari'ah-compliant products and services. Bahrain's focus on innovation and customer service has solidified its position as a top destination for Islamic finance development and a leader in the global Islamic finance industry.

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