Bahrain's banking sector has come under intense scrutiny after one of its flagship investment banks filed for bankruptcy protection.
Arcapita Bank sought protection under Chapter 11 of the US Bankruptcy Code on Monday after it failed to secure agreement from its creditors on a US$1.1 billion (Dh4.04bn) debt facility that was due to mature this month.
Bahrain's financial sector contributes about one third of the country's GDP and employs about 3 per cent of the nation's workforce, according to the IMF. But the total assets of its banking sector are about 12 times the size of its economic output and the government lacks the wealth of other oil-rich Gulf states.
Bahrain's offshore banking sector, which recycles international liquidity throughout the Gulf, is heavily reliant on funding from European banks, which are quickly withdrawing capital amid sector-wide deleveraging as a result of the euro-zone sovereign-debt crisis.
"The volatile nature of foreign liabilities placed in Bahrain's wholesale banks was exposed during the Arab Spring," analysts from Moody's Investors Service wrote in a report released on Monday.
"Direct exposure to the domestic operating environment is limited but increased risk perception and sustained outflows would trigger a significant slowdown in business volumes and pose some serious structural challenges for this industry."
During the first six months of last year, $19bn of liabilities - which includes deposits - were withdrawn from Bahrain's financial system, representing 12 per cent of sector-wide liabilities, according to Moody's.
Banks have also redeployed staff from Bahrain to other points in the region throughout the past year.
BNP Paribas, the biggest international lender in the kingdom, relocated as many as 30 employees from its wealth management division to Dubai, according to sources close to the bank.
Crédit Agricole closed its Middle East office in Manama to move staff to Dubai last August, Reuters reported at the time.
Société Générale also closed its private-banking office in the country as part of a cost-cutting drive, centralising its Middle Eastern private-banking operations in Dubai.
Bahrain's banking system had some differentiating factors that could convince foreign capital to stay put, particularly in the Islamic finance and asset management industries, said Jean-Michel Saliba, a Middle East economist at Bank of America Merrill Lynch.
"They have some advantages, but they've been eroded by the geopolitical uncertainty in Bahrain, and there's no clear way of how they're going to resolve this," he said.
Liquidity injections worth €1 trillion (Dh4.87tn) provided by the European Central Bank to European banks beginning last year, may slow the withdrawal of funds from Bahrain and elsewhere in the Gulf, but it would not reverse it, Mr Saliba said.
A number of hedge funds and asset managers have withdrawn operations in favour of Dubai, with some citing the kingdom's political unrest last year as the final straw.
Others pointed to regulatory uncertainties after the collapse of The International Banking Corporation and Awal Bank.
The investment fund industry, which manages assets equivalent to about 80 per cent of Bahrain's GDP, was fearing a hit from any regulatory backlash against the financial services sector, said one private banker at a major Swiss bank.
Yields on Bahrain's 10-year government bonds, which pay a coupon of 5.5 per cent, initially rose by 35 basis points to 5.74 per cent in tradingsince Arcapita filed for protection from its creditors. They have since retreated to 5.716 per cent.
ghunter@thenational.ae
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Company%20Profile
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The specs
Engine: 1.5-litre 4-cylinder petrol
Power: 154bhp
Torque: 250Nm
Transmission: 7-speed automatic with 8-speed sports option
Price: From Dh79,600
On sale: Now
Specs%3A%202024%20McLaren%20Artura%20Spider
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The specs: 2018 Nissan 370Z Nismo
The specs: 2018 Nissan 370Z Nismo
Price, base / as tested: Dh182,178
Engine: 3.7-litre V6
Power: 350hp @ 7,400rpm
Torque: 374Nm @ 5,200rpm
Transmission: Seven-speed automatic
Fuel consumption, combined: 10.5L / 100km
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Starring: Winona Ryder, Michael Keaton, Jenny Ortega
Director: Tim Burton
Rating: 3/5
The specs
Engine: 2.7-litre 4-cylinder Turbomax
Power: 310hp
Torque: 583Nm
Transmission: 8-speed automatic
Price: From Dh192,500
On sale: Now
SPECS
%3Cp%3E%3Cstrong%3EEngine%3A%3C%2Fstrong%3E%20Two-litre%20four-cylinder%20turbo%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E235hp%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E350Nm%3Cbr%3E%3Cstrong%3ETransmission%3A%3C%2Fstrong%3E%20Nine-speed%20automatic%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh167%2C500%20(%2445%2C000)%3Cbr%3E%3Cstrong%3EOn%20sale%3A%20%3C%2Fstrong%3ENow%3C%2Fp%3E%0A
The%20Specs
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How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
Greatest of All Time
Starring: Vijay, Sneha, Prashanth, Prabhu Deva, Mohan
SPECS
Nissan 370z Nismo
Engine: 3.7-litre V6
Transmission: seven-speed automatic
Power: 363hp
Torque: 560Nm
Price: Dh184,500
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Company%20Profile
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Confirmed%20bouts%20(more%20to%20be%20added)
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The specs
Engine: 2-litre 4-cylinder and 3.6-litre 6-cylinder
Power: 220 and 280 horsepower
Torque: 350 and 360Nm
Transmission: eight-speed automatic
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On sale: now
The biog
Marital status: Separated with two young daughters
Education: Master's degree from American Univeristy of Cairo
Favourite book: That Is How They Defeat Despair by Salwa Aladian
Favourite Motto: Their happiness is your happiness
Goal: For Nefsy to become his legacy long after he is gon
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COMPANY%20PROFILE%20
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ALRAWABI%20SCHOOL%20FOR%20GIRLS
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The studios taking part (so far)
- Punch
- Vogue Fitness
- Sweat
- Bodytree Studio
- The Hot House
- The Room
- Inspire Sports (Ladies Only)
- Cryo
MEDIEVIL%20(1998)
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Diriyah%20project%20at%20a%20glance
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COMPANY%20PROFILE
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