Bahrain Monetary Agency (BMA) Governor Sheikh Ahmed bin Mohammed al-Khalifa called for Gulf banks to consolidate or merge in order to create the capital base needed to participate in major long-term project financings in the region, in his opening address at MEED's Project Finance conference in Manama on 15-16 October. More than 100 delegates from the Gulf and beyond were also told that the BMA has started work on expanding the activities of financial institutions operating from Bahrain in seven key banking sectors.
'Project finance inevitably involves the construction of infrastructure assets such as airports, dams and other schemes,' he said. 'The main problem in this respect for many of the banking institutions in Bahrain, both conventional and Islamic, has been the short-term nature of the sector's funding base.'
'In order to finance such long-term projects, banks need to be able to better match their asset/liability profiles,' he continued. 'Even when funds can be matched, capital limitations will continue to seriously compromise the ability of many banks to compete in the financing of major international projects.
'Therefore, and in order to compete with the larger international banks, many of our institutions have to consider further consolidation, mergers or a substantial increase in their capital base.Although recent bank mergers in the Gulf region are a step in the direction of countering this disparity, it has to be acknowledged that regional banks will not become major players in the international project finance market until they themselves start to merge and/or pool resources.'
Sheikh Ahmed said that there would be advantages to the emergence of a regional 'local champion' strong enough to compete with major international banks, adding: 'It would further the reputation of the financial centre if such a champion were based in Bahrain.'
Sheikh Ahmed said that law firm Freshfield Bruckhaus Deringerhas been appointed to prepare enabling legislation and to assist in drafting an expanded regulatory and supervisory framework governing the expanded responsibilities of the BMA, which is now the sole regulator for the financial sector.
McKinsey & Companyhas completed a review of the financial sector and this has led to the decision to promote selected financial sectors. They are debt and equity markets, insurance, Islamic finance, corporate and private banking and remote services.
'The agency has set up individual implementation teams for each of these high-priority sub-sectors, with an operation structure and timeframe to bring such developments to a successful conclusion,' Sheikh Ahmed said.
Other recent developments have included the publication for the first time in the region of a government debt issuance calendar, and action is being taken to broaden and deepen the range of securities traded on the Bahrain Stock Exchange (BSE), he added.
The MEED Project Finance conference was sponsored by Gulf International Bank (GIB). The other sponsors were Baker & McKenzie, Taylor- DeJongh and Bexair.
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