Bahrain’s banking sector would benefit from more mergers, particularly between the larger financial institutions, which would help strengthen the country’s role as a financial hub for the Middle East.

This is the general consensus among many CEOs of major Bahraini banks, who are keen to cement the country’s image as a regional centre for banking capable of competing against Dubai and Doha.

In 2013, there were a number of mergers between small-to-medium-sized lenders, including the creation of Ibdar Bank in December from the merger of Capivest, Elaf Bank and Capital Management House. At a recent conference in Bahrain, the Central Bank governor confirmed that one or two mergers were in the pipeline for 2014.

But the market would like to see consolidation move much faster and potentially involve the merger of larger institutions to create more competitive regional banks. What is needed is to convince the banks’ shareholders that mergers will be beneficial to them and the wider market in the long term.

Bahrain’s banking sector is primed for growth, with many lenders reporting stronger balance sheets and improved profits. At the end of last year, the agency upgraded Arab Banking Corporation’s and BBK Bank’s ratings.

Yet the banking sector’s reputation as a stable regional financial centre could be threatened by any increase in the political unrest seen since early 2011. On 3 March, a bomb planted by an anti-government group killed three members of the security forces when it exploded in a Bahraini village. Encouraging greater consolidation and the formation of stronger larger banks could be one way to strengthen the country’s regional reputation.