The Central Bank of Bahrain (CBB) has urged banks to make aggressive writedowns of assets hit by the financial crisis as it tries to safeguard its reputation as a prudent regulator.
Bankers in Bahrain say the CBB has asked to see copies of bank financial results before they get board approval and are published.
“The CBB has become a lot tougher with banks recently,” says the chief executive of one Bahraini financial institution. “They are reviewing every bank’s financial results and that is why we are starting to see a lot of substantial losses being announced.”
One local banking analyst adds, “The regulator wants to make sure banks are making adequate provisions for impaired assets, and not taking any profit from revaluing assets that has not actually been realised.”
In the past banks have been booking profit based on an increase in the market value of land or property assets, even though that profit had not actually been realised, and some are now starting to report losses.
Gulf Finance House (GFH), a local Bahraini Islamic bank, reported a loss of $728m in 2009, mainly due to provisions for the fall in value of its assets. Ted Pretty, the acting chief executive of GFH, says he has been working closely with the CBB on putting together the bank’s results.
The CBB has taken several steps over the past 18 months to shore up local banks. In early 2009, it told banks to be conservative in paying shareholders dividends and keep the cash to cope with a tough year ahead (MEED 01:02:09).
Later in year, CBB governor Rasheed al-Maraj said he was working with investment banks in the country to ensure they had re-examined business models in the wake of the financial crisis and the drying up of liquidity to help them finance activities (MEED 27:03:09).