Bahrain Middle East Bank (BMB) reported a 54 per cent drop in profits in 1994, as the bank continued to diversify away from commercial lending and towards investment banking, private banking and corporate finance.

Net profits fell to $2.8 million last year, compared with $6.1 million a year earlier. BMB says volatility in the global equity and bond markets affected performance and the bank's new activities have not yet generated enough to replace lost income from a reduced loan portfolio. 'The bank will pursue long-term strategic objectives rather than being governed by short-term profitability,' BMB's chairman, Abdul Rahman Salem al-Ateeqi, said in a statement.

Traditionally the bank's core business has been commercial lending. However, during the past two years, the loan portfolio has been reduced by 46 per cent, or $101 million.

Under its diversification plans, investment banking will become one of the main activities. This involves expanding the London office so that it can identify new investment opportunities in UK and European equities for Gulf investors. It also includes developing new financial products for investors, mainly in unlisted companies and property. 'In the past BMB invested indirectly through funds managed by other people, but increasingly we will be investing directly,' says Rodney Hall, the London representative.

BMB's main shareholder is the Kuwait-based Burgan Bank, which holds 28.8 per cent of the bank. The remainder is held by 16,000 shareholders.