BAHRAIN'S bankers are upbeat about the prospects for the year ahead. The local economy has struggled to sparkle this year, but the government's improved fiscal outlook, allied to action planned on infrastructure and industrial projects should create new opportunities in 1997. 'We are operating in a slow business environment,' says Peter Tomkins, General Manager at joint venture Grindlays Bahrain Bank. 'But next year's government budget indicates increased investment and people are generally more hopeful.'

To be ready for the expected upturn the Bahrain Monetary Agency (BMA - Central Bank) wants to see the banks enhancing their capacity to fund major projects. This could be achieved if the banks were bigger and armed with a stronger capital base. There has been modest progress on this score and earlier in the year National Bank of Bahrain (NBB) increased its share capital to BD 40 million from BD 36 million.

The BMA has also made clear that it would favour mergers among the smaller banks as a way of boosting their capacity to support industrial and economic development. 'We cannot expect external private sector capital to flow our way without a substantive parallel domestic contribution to our own development and diversification effort,' BMA governor Abdulla Saif wrote in an article published earlier this year.

Most of the banks agree that corporate banking and project finance will be areas for future development. 'We believe there is considerable room for growth [in corporate banking], when the government implements certain projects,' says General Manager and Chief Executive Officer at Bank of Bahrain & Kuwait (BBK), Murad Ali Murad. Bankers have in mind the development at Hidd of a new power and desalination plant, a port and an industrial free zone.

Project opportunities

The larger banks have already led the way with substantial project financings. This year NBB and BBK both participated in the $110 million syndicated loan facility to part-finance the urea plant being built at Sitra by Gulf Petrochemical Industries Company. The same two banks are also reported to have submitted offers to underwrite a $210 million facility for a direct reduction iron plant to be built by India's Ispat Group. NBB and Al Ahli Commercial Bank (ACB) were involved in a $130 million syndicated loan arranged for Aluminium Bahrain just over a year ago.

Nevertheless, there are limits to the potential of the local market and NBB has been expanding its regional corporate activity. In the second half of this year, the bank is participating in no less than five financings in other GCC states two in Saudi Arabia, two in the UAE and one in Oman. And more are expected. 'A number of projects have been identified in the regional oil, gas, power and water and petrochemical industries,' says Chief Executive Officer Hassan Juma. 'These require significant funding and present opportunities for the bank to participate in.'

Despite such promising developments the core business for Bahrain's banks remains the domestic consumer and trade finance market. The tougher economic climate means that the banks are continuing to be cautious in consumer lending, bearing in mind the BMA's call in mid-1994 for the banks to exercise restraint. The banks' consolidated loans and advances portfolios grew by just 1.3 per cent in the first six months of 1996. 'Growth [in consumer lending] has been gradual,' says BBK's Murad. 'We are continuing to use realistic and stringent conditions for consumer loans.'

Product diversity

Due caution does not stop the competition and the banks are battling to improve their share of the consumer market by offering new products to attract

customers. 'We need to diversify products and services to encompass more than just banking services,' says Murad. This year BBK has launched a new gold credit card and a premier account. In September, ACB started offering its Al-Rabeh savings certificate which provides regular prize payouts to holders, along the lines of the UK's premium bonds. 'Savings products are part of the strategy to grow our low-cost liabilities,' says Michael Fuller, chief executive at ACB. 'Al-Rabeh is also attracting the expatriate community who would not normally come to Al Ahli.'

New investment products are just one of the services being offered by Bahrain's banks to develop new business. The challenge is to make the products perform. Since NBB launched its guaranteed investment fund in 1995 it has grown by only 1.65 per cent, which is below the five-year trend that the bank had hoped to achieve. A slow start is no deterrent and NBB chief executive Hassan Juma says that investment products are important to the bank. 'We are fully committed to the fund management business and have plans to offer a steady stream of new investment products,' he says. 'We will be making announcements on specific launches in the near future.' BBK also launched a guaranteed fund last year and has plans for more. 'We hope

to come out with new investment products in 1997,' says Murad. 'We are also looking closely at an Islamic fund in collaboration with Islamic financial institutions.'

With the exception of NBB, which has an Abu Dhabi branch, BBK is the only domestic bank with a significant regional network. The bank does business in Kuwait, has two branches in India and an affiliate in Oman. And it wants to expand. This year it obtained a licence to open a representative office in Dubai which should be inaugurated early in 1997. In the longer term, BBK would like to open a Dubai branch. Murad explains that a UAE branch is a natural step for BBK, which already counts Bahrainis and Kuwaitis who do business in the UAE among its customers.