MANAMA, March 4 Bahrain's central bank governor
said on Tuesday he expected further bank consolidation this year
after a spree of tie-ups in 2013, and the regulator was
encouraging Islamic banks in the kingdom to get credit ratings
to improve transparency.
Mergers in the Middle Eastern banking sector are rare as
powerful local shareholders are often unwilling to give up
controlling positions except for vastly-inflated valuations.
However, in Bahrain, the central bank has been encouraging
smaller lenders to merge to bolster institutions weakened by a
local real estate crash and fall-out from the island kingdom's
political unrest in 2011, which has continued sporadically since
Speaking on the sidelines of a finance conference in the
capital, Rasheed al-Maraj said he expected further tie-ups to be
announced by the end of the year.
"We are working on one or two now, so we will see how that
goes," he said without elaborating further.
In 2013, there were four separate examples of consolidation
in the Bahraini banking sector, including a three-way tie-up
between sharia-compliant investment firms to create Ibdar Bank.
National Bank of Bahrain and a local pension fund
bought a 51.6 percent stake in Bahrain Islamic Bank in
March 2013, while a share-swap agreement between Al Salam Bank
and BMI Bank was completed last month to create the
kingdom's fourth-largest commercial lender.
A tie-up between Khaleeji Commercial Bank and
unlisted Bank Al Khair is still being discussed. Khaleeji said
in a statement earlier this week it had received the draft due
diligence report from the consultant employed to review Bank Al
Khair, which it was now studying.
Maraj told the finance event that the central bank was
advising Islamic banks in the kingdom to get credit ratings.
Sharia-compliant lenders were among the hardest hit by the
sector's problems, given their heavy exposure to the local real
estate market and the business models of many which were tied to
advising on transactions relating to property - deals which
dried up once the market slumped.
Bahrain has a sizeable Islamic finance industry and is home
to one of the main standard-setters for sharia-compliant
banking: the Accounting and Auditing Organization for Islamic
Financial Institutions (AAOIFI).
Maraj said that the ratings could be from any of the three
main rating agencies - Fitch Ratings, Moody's and Standard &
Poor's - or from the Islamic International Rating Agency, which
is backed by industry bodies including the Islamic Development
While securing a rating wasn't a regulatory requirement
prescribed by the central bank, it was advising banks to do so
to enhance transparency in Bahrain's Islamic banking sector.
"Transparency is very important for us," Maraj said. "This
is part of the policy." He added he expected all banks would
have a rating in the next two years.
(Reporting by David French; Editing by William Hardy)