We are pleased that most Bahraini banks are reporting an average annual profit rate of 10-15 per cent, but these profits are threatened with reversals if banks do not relax their lending restrictions on companies and individuals.
We fully understand the concerns and challenges that banks face, and their keenness to fully comply with all the strict laws and standards imposed on them both in Bahrain and around the world.
After the global financial crisis of 2008, these include, among others, Basel III standards that require each bank to freeze a large part of its liquidity.
Just as we have begun to understand the fear of banks another crisis looms as a result of the Washington-Beijing trade war, the global rise of sovereign debt, which has risen to unprecedented levels, and the increasing need for all: Governments, corporations and individuals for financial liquidity.
On the other hand, the banking sector must be aware that to continue achieving relatively high profit rates depends mainly on the movement and expansion of other sectors – retail, real estate, education and others.
It is a reciprocal relationship, and one party cannot continue to profit year-after-year if the other party loses year-after-year.
I think it’s time to conduct a comprehensive review of the relationship between the bank and the merchant.
There is no doubt that the merchant will not be able to work properly and achieve success if he does not have a partner bank to help and support him.
Similarly the average citizen will not be able to contribute to moving the economy actively if he does not get loans. Affordable banking helps him buy a house, apartment, furniture, car and other basic life needs.
Banks have money, and money for the economy is blood for the body. It helps members stay alive and perform their functions in full harmony. We see that the trader today has begun to reduce his profits so as to give the market competitive prices. If the trader is simple or has a limited budget and is able to reduce the price of his goods as well as the margin of his profit; why then can’t the bank reduce its interest? This is a puzzling question indeed!
Interest on loans is now declining in most countries, and interest in some countries has become negative, in the sense that depositors have to pay fees to the bank in exchange for saving their money. Because governments want to stimulate the economy and move its wheels, and they do not want money to accumulate in banks. So these profits have become artificial... because money can’t generate money.
Last week, the Reserve Bank of Australia cut its benchmark interest rate by a quarter percentage point to a new record of 0.75pc, to stimulate the economy. I realise that the peg to the dollar limits the CBB’s ability to move rates up or down, but surely private banks can do this easily.
The government has asked Bahraini banks to now provide banking facilities to Bahraini companies, especially small and medium-sized, which make up more than 95 per cent of total commercial institutions in Bahrain. But these banks have not responded to this request properly, and the conditions for granting loans is still difficult.
The history of the loan applicant company must be long, profitable, and have many guarantees.
We know that most SMEs cannot meet all of these requirements, and then we ask ourselves: Why do so many of these institutions drop out of the market?
The answer is simple: They have not received the necessary funding to maintain their continuity and growth.
Liquidity is abundant in the coffers of Bahraini banks, and the assets of the banking sector amounted to more than $192 billion last November, according to the Central Bank of Bahrain. So why not move these funds properly and pump them into the arteries of the national economy?
The paradox is that when giant infrastructure projects in Bahrain, such as the expansion of Bapco’s refinery, LNG terminal or Alba’s sixth line, are not encouraged, many Bahraini banks are encouraged to enter into financing these guaranteed national revenue projects. Part of the problem is, in my opinion, the lack of audacity of the decision-makers in this or that bank.
Investments are safer and they resort to buying government treasury bonds with 100pc guaranteed returns, for example.
I believe that the Bahraini banks have the right to regain their leading role in the Gulf and the region. One solution is merger, and it is unacceptable that these banks continue to live on the glories of the past and compete among themselves to share part of the small domestic market cake, which is also competing with large regional banks.
I once heard from a senior banking official that there is no obstacle to merger of banks in Bahrain other than the different minds of their boards of directors and the desire for leadership and independence, although the CBB and the Association of Banks in Bahrain encourage banks merger.
Banks in Bahrain should also pay attention to competition from non-banks in providing liquidity, such as crowd-funding, which has become active and licensed in countries such as the UAE, where there is an electronic platform where investors put their money on one side and borrowers get their loans from the other side easily.
This eliminates the bank’s role altogether, and technology companies are starting to compete with banks in providing Fintech online money transfer services.
Over the last 100 years, Bahrain has been able to build an advanced banking sector in the Middle East. We are proud of the achievements of this sector over the years, its contribution to the GDP of more than 16pc, and the provision of about 14,000 jobs, many of whom are Bahrainis in senior administrative levels.
Today we also see that this sector is required to play a greater role in shaping the relationship between it and the trader, it has the opportunity to be more daring to move the market and stimulate the national economy.