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Recovered poise.

BANKS IN THE GCC countries including Bahrain seem to be recovering their poise and profitability, helped by the post-Gulf war business upturn in trade and construction in the region and a worldwide decline in interest rates. Several banks have recorded increased (and some record) profits in 1992, including the two largest Manama-based institutions, Arab Banking Corporation (ABC) and Gulf International Bank (GIB). Several others have made no new provisions for bad loans in 1992.

ABC, jointly owned by Kuwait, Libya and Abu Dhabi, but headquartered in Manama, has announced a 76% rise in net profits of $79m for the fiscal year 1992. GIB's increase in net income for 1992 to $63.7m is up 37% on the previous year. Investcorp also reported a 20% increase in profits to $62.7m for 1992. The OBU Trans-Arabian Investment Bank (TAIB) recorded 26% rise in net profit to $4.1m in 1992 and has proposed a $1.25m dividend. TAIB's total assets grew to $328.4m at the end of 1992, compared with $247.2m at end 1991.

Both the National Bank of Bahrain (NBB) and the United Gulf Bank (UGB) made no new provisions for bad loans in 1992, saying that their loans were adequately covered by existing provisions. NBB's provisions for bad loans fell sharply to $2.4m in 1992 compared with $10.5m in 1991 because of a "notable improvement" in the quality of the bank's assets. NBB's annual general meeting also approved an improved cash dividend for 1992 of $17m from $14.8m in 1991. According to UGB, its accumulated loan loss provisions also declined to $9.4m at the end of 1992 from $11.8m for the same period.

However, there is still some way to go to reach the asset and profitability levels as banks in the region continue to retrench from international markets in the aftermath of the collapse of the Bank of Credit and Commerce International (BCCI) and are now increasingly required to finance their countries' budget deficits and investment. BMA officials such as Naser al Belooshi, executive-director of management services, are confident that the Gulf crisis has actually enhanced the reputation of Bahrain as international financial centre. "The country did experience a downturn in business, together with some loss of deposits. The fall-out from the crisis was, however, relatively minor, and the difficulties encountered were overcome and rather sooner than expected.

"Major factors were the close consultative process between the BMA and the banks, the firm but flexible supervisory and regulatory role played by the Agency, and its ability and willingness to ensure an adequate level of liquidity and resources for the banking system," says Al Belooshi. "These factors contributed to a positive perception of Bahrain's ability to manage its affairs in a competent professional and cooperative manner, and of the market's maturity and resilience."

According to the Abu Dhabi-based Arab Monetary Fund (AMF), the Gulf war cost the six GCC states $300bn and increased international commitments and defence spending is putting extra pressure on government financing. One study concluded that the GCC budget deficits rose in 1992 to a collective $27.62bn. Bahrain's budget deficit for fiscal year 1993 is estimated by the government at BD63m rising to BD75m in fiscal year 1994.

On the whole, Gulf banks are responding to the new capital adequacy requirements of the Bank of International Settlement's Basle Committee rulings which stipulate that banks capital adequacy ratios - that is the ratio between shareholders' equity and assets - should be a minimum 8%. According to Al Belooshi, Bahraini banks have successfully met the BIS capital adequacy requirements for some considerable time, and Bahrain was among the first jurisdictions outside the Group of Ten to embrace the requirements. Mergers and restructuring have also been the order of the day, bringing with them greater stability in the sector.

At the end of 1992, according to BMA figures, there were 17 commercial banks in Bahrain, three specialised banks, 47 OBUs, 21 investment banks, 47 representative offices, four money brokers, 22 money changers and 68 insurance companies. The number of OBUs have declined over the last few years. Others such as the International Bank of Commerce (IBC), have been under the administration of the BMA since last August.

Gulf finance will be dominated for years to come by the need for the region to borrow for reconstruction, oil industry expansion, industrial development and to finance government budget deficits. The switch of the region from being a net lender to a borrower is creating opportunities for the banks.

The latest Bahrain Monetary Agency (BMA) figures indicate that assets of Bahrain's offshore banking units soared by almost 22% in the first nine months of 1992 to $62,690m, from $53,382m at the end of 1991, to $56,802m at the end of March 1992, to $60,269m in June 1992 - still way down from the peak of $72,580m in 1989. The BMA is confident that Bahrain will be able to meet the competition from a growing number of new financial centres including Dubai, Istanbul and Cyprus.
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Title Annotation:Special Report; Bahraini banks
Author:Parker, Mushtak
Publication:The Middle East
Article Type:Industry Overview
Date:May 1, 1993
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