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Friday, 8 February 2008

Keeping banks safe!

MANAMA: The Central Bank of Bahrain (CBB) intends to implement imminently new rules to limit banks' exposure to the real estate market, Governor Rasheed Al Maraj said yesterday.He spoke two days after two Bahrain banks, Arab Banking Corporation (ABC) and Bank of Bahrain and Kuwait, reported that the US subprime crisis hit their profits.

"There is a lesson for all of us from the US subprime crisis and as a recent front cover headline of The Economist said: 'It's rough out there'," he added.

"Despite the boom all around us in this region, we need to be vigilant because it is in boom times that mistakes are made and guards are let down.

"I have no doubt that the region's most mature financial centre will remain at the forefront of financial developments in the Middle East region. Our core model remains strong and we have a clear vision for how we want to go forward."

Bahrain remains committed to pegging the dinar to the dollar, Mr Al Maraj pledged.

Speaking at the First Business Roundtable with the Government of Bahrain at the Ritz-Carlton Bahrain, Hotel and Spa, organised by The Economist magazine he said there would be no knee jerk reactions to the weakening US economy.

"Monetary policy, as you all know, is a judgment call and our judgment, based on our analysis of available information and projections of trends, cautions us against a rush to abandon.

"No doubt there is a new challenge here in the form of a new phenomenon - a weakening US economy juxtaposed by huge economic growth in the GCC and Asia. "

Looking forward he said he CBB sees a huge opportunity in insurance, an industry which is seeing double-digit growth in Bahrain.

"Since the introduction of CBB's Insurance Rulebook in 2005, a number of international giants have established their Middle East hubs for conventional and Islamic insurance (takaful) in Bahrain, he said.

"Another major development has been the licensing last year by the CBB of the Middle East region's first captive insurance company. More recently, the CBB has waived capital requirements for the Bahrain branches of foreign insurance firms.

"In banking, Bahrain continues to maintain its three decade long leadership with many prominent new additions to Bahrain's banking community," he said.

"The CBB, for its part, continues to further its regulatory leadership through ongoing work related to Basel II, with Pillar One regulations having come into effect in January this year, and Pillars Two and Three scheduled for later in the year.

"Although Islamic financial products are not explicitly mentioned in Basel II, given the importance of Islamic banking in Bahrain, the CBB is the first financial services regulator to adopt a comprehensive Basel II compliant framework which provides for appropriate capital treatment of products such as Murabaha and Ijara, Istisna'a."

ABC saw its annual profit fall from $202 million in 2006 to $125m this year.

BBK had to make a BD23.2m provision to cover losses due to the US subprime crisis. The profit would have been BD46.7m but for the impact of the writedown which saw profit for the year down 8.4 per cent over 2006 at BD30m.

"While the underlying performance of the bank has been good, the turmoil in the global financial market has impacted certain financial assets," acting general manager A Karim Bucheery.

"As a matter of prudence, the bank has decided to conservatively provide against those assets, which had adversely impacted the financial results of the bank for the year," he added.
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