Banking in Bahrain

Financial and Banking Sector in Bahrain

Bahrain’s financial sector is well-developed and diversified, consisting of a wide range of conventional and Islamic financial institutions and markets, including retail and wholesale banks, specialized banks, insurance companies, finance companies, investment advisors, money changers, insurance brokers, securities brokers and mutual funds. There is 370 financial institutions in the country as of end of December 2020 including 91 banking institutions, 34 insurance companies, 53 investment business firms and 86 specialized licensees.

The sector is therefore well-positioned to offer a wide range of financial products and services, making it the leading financial center in the Gulf region.

The financial sector is the largest single employer in Bahrain, with Bahrainis representing over 67% of the work-force of near 14 thousands. Overall, the sector contributes 17.2% of Bahrain’s Gross Domestic Product (GDP), making it one of the key drivers of growth in the country.

The sector is regulated and supervised by the Central Bank of Bahrain (CBB), which since 2006 has functioned as the single regulator for the entire financial system.

Banking Industry

Bahrain’s banking system consists of both conventional and Islamic banks and is the largest component of the financial system, accounting for over 85% of total financial assets. The banking sector includes 30 retail banks (13 locally and incorporated and 17 foreign banks’ branches), 61 wholesale banks, and 8 representative offices of overseas banks.The banking sector has played a pivotal role in the emergence of Bahrain as a leading financial center in the region. As at December 2020, banking sector assets stood at over US$207 billion, more than twelve times annual Gross Domestic Product.

Industry growth has been supported by an open market economy; stable and prudent macro-economic and fiscal policies; a credible regulatory framework in line with international standards; and a notably strong and well qualified local workforce. All these factors have combined to cement Bahrain’s position as a regional banking hub, successfully attracting numerous foreign banking organizations to establish a physical presence in the country.

Banking sector in Bahrain has proved it vital role and it resilience during the COVID-19 pandemic, as the sector contributed significantly to support clients, society and economy, while maintaining its financial solvency.

In addition, the sector has shown revolutionary jump in its digital banking services as well as open banking services in recent years.  Many digital banks were established. The CBB laid down the suitable ecosystem for the flourishing of modern banking services.

Islamic Finance

Bahrain has long been recognized as a global leader in Islamic finance, playing host to the largest concentration of Islamic financial institutions in the Middle East and home to a number of pre-eminent global Islamic standard setting organizations. Islamic financial institutions offering a host of Shari’ah compliant products and services include 6 retail banks, 13 wholesale banks, 9 Islamic windows of conventional banks, 6 Takaful companies and 2 Re-Takaful companies. In addition, Bahrain is at the forefront for issuing Islamic securities (Sukuk), including short-term government Sukuk as well as long term instruments. The Central Bank has played a leading role in the introduction of these innovative products.

The growth of Islamic banking has been remarkable, with total assets increasing from US$1.9 billion in 2000 to US$32 billion as of December 2020, an increase of over 17 times. The market share of Islamic banks correspondingly increased from 1.8% of total banking assets in 2000 to 15.4% in December 2020. This growth was made possible by a variety of factors, most importantly the clear vision and approach of the Central Bank of Bahrain. The CBB introduced a separate regulatory framework along with a comprehensive prudential and reporting mechanism for the Islamic segment, tailor-made for the specific concepts and needs of Islamic banking and insurance. The rulebook for Islamic banks covers areas such as licensing requirements, capital adequacy, risk management, business conduct, financial crime and disclosure/reporting requirements. Similarly, the insurance rulebook addresses the specific features of Takaful and Re-Takaful firms. Both rulebooks were the first comprehensive regulatory frameworks that dealt with the Islamic finance industry in the region.

In order to develop the market for Islamic finance and invest in capacity building the CBB was instrumental in establishing the Waqf Fund in collaboration with the industry. Since 2006 the Waqf Fund has been offering programs in Islamic finance training, education and research to cater for the various industry needs. These include specialized programs targeting the Board of Director, senior management, Shari’ah resources and other staff of its member institutions.

In addition to the numerous Islamic financial institutions active in its financial sector, Bahrain also plays host to a number of organizations central to the development of Islamic finance, including: i) the Accounting and Auditing Organization for Islamic Financial Institutions (‘AAOIFI’); ii) Liquidity Management Centre (‘LMC’); iii) the International Islamic Financial Market (‘IIFM’), iv) and the Islamic International Rating Agency (‘IIRA’) and v) Shariya Review Bureau.

Financial Sector’s Fact Sheet