IN EARLY 2010, TV ads featuring international corporations such
as HSBC and KPMG began airing in Bahrain to promote the
countrys position as a regional financial hub. In one of
them, an executive from French bank BNP Paribas describes the
small Gulf island nation as "like Wall Street with palm trees"
and signs off by asking: "Wish you were here?"
A year later, in early
2011, many people were wishing they were almost anywhere else.
As troops moved onto the streets of the capital to dispel
pro-democracy protestors, Manamas financial district was
more like Wall Street with guns and tanks.
The EDB has confirmed
that Crédit Agricole has pulled out of Bahrain, although
they insist that no other big player has followed. For all
their reassurances though, for that to remain the case in the
longer term depends on the maintenance of peace and stability
in the kingdom.
But others in the
industry were still prepared to tell Euromoney about
the mood among bankers in Bahrain and offer views about the
short-term and long-term impact of this years unrest.
Many in the country deny there are any serious problems but the
views in other financial centres are important for Middle East
trade. Bankers in such as Dubai, Beirut and London are often
far more pessimistic.
The political unrest in
the country began in mid-February when protestors camped out at
the Pearl Roundabout calling for greater freedom and equality.
It was a rare outbreak of political activism for the Gulf and
was only briefly tolerated by the authorities. A brutal
crackdown took place in mid-March with the aid of troops from
Saudi Arabia and other Gulf Cooperation Council countries.
The events had some
notable short-term effects on the banking sector. Institutions
in the country put their contingency plans into action by
moving staff and operations to other centres, money was
withdrawn from the market and credit lines were frozen by
international banks. With normal economic life disrupted, some
business owners had difficulties servicing their bank
After March the
situation, on the surface at least, appeared to return to
normal. But the question now is, how much long-term damage has
been done to the country and its key financial sector and how
quickly a recovery can take place. As Esam Fakhro, chairman of
the Bahrain Chamber of Commerce & Industry and a prominent
figure on the local business scene, acknowledges: "It takes you
a very long time to build and a short period to destroy
If Bahrain does not
manage to recover all of the ground it has lost, the effect on
its economy might be severe. There are 411 banks and other
financial institutions in the country, including 77 wholesale
banks, 30 retail banks and 27 representative offices, as well
as 27 Islamic banks. According to the Central Bank of Bahrain,
the financial sector as a whole contributes some 27% of GDP and
is a big source of jobs for locals and foreign nationals.
At the end of December
2010 the financial sector employed a little over 14,000 people
in the country, according to the annual survey by the Central
Bank of Bahrain, and two-thirds of those were Bahraini staff.
The main driver of jobs growth in the past year has been the
non-bank sector, including insurance firms and money brokers.
In 2010 employment in the banking sector fell, from 8,946 at
the start of the year to 8,782 by the end of December. Unless
the economy recovers, the number could have dropped even more
by the time the central bank comes to do its next annual
Even before the political
unrest, Bahrains position as a regional financial hub had
been coming under steady pressure as a result of the growth of
the Dubai International Financial Centre and, to a lesser
extent, the Qatar Financial Centre. Both have proved themselves
to be adept at luring large international banks and, just as
important, both have remained peaceful this year. As a result,
they are now viewed as safe havens and it is widely assumed in
the Gulf that the money that left Bahrain at the height of the
crisis largely went to those centres, even if this cannot be
proved directly from the official sources.
"The data did show some
outflow from Bahrain during the unrest," says Marios
Maratheftis, the Dubai-based regional head of research at
Standard Chartered Bank. "This was understandable and
anticipated; it is something one would expect to see. That
doesnt mean the cash that left Bahrain went to Dubai and
Qatar because we cannot really see that from the data. But
there were large inflows into Dubai and Qatar. Dubai and Qatar
emerged as relative winners out of the unrest."