Bahraini banks start to feel downturn

Recent losses at banks and investment firms have the government keeping a close watch on local businesses.

Bahrain's financial services sector has remained in good health despite the global downturn, but government officials are monitoring local companies closely after big losses at several banks and investment houses, a government official says. The financial services sector, which accounts for about 27 per cent of economic activity in the nation, recently began to show signs of stress after two large investment companies announced significant losses in the final quarter of last year.

Gulf Finance House (GFH), which is heavily exposed to property projects across the region, lost US$607 million (Dh2.22 billion) for the quarter, while another investment company, Arcapita, revealed losses of $159m for the period. "We see what is happening in the market, and the organisations themselves have to make sure they're recovering after what's happened in the past two years," said Kamal Ahmed, the chief operating officer of the Bahrain Economic Development Board, a government entity that oversees the country's development strategy.

"We know the central bank has made sure that they have plans to address all their issues and review their models and bring their organisations back to profitability." The troubles at Bahrain's financial companies and banks have led to cost-cutting and job losses. GFH has cut almost 100 people, and Arcapita said last week that it had trimmed its workforce by about 15 per cent. Still, some financial companies in Bahrain are beginning to return to profitability after major losses earlier. Investcorp, a boutique investment bank that lost $780.6m in the first half of last year, said it made $60.2m in the second half of the year.

Arab Banking Corporation, another Bahraini company, which lost $880m in 2008, has also returned to profitability. Mr Ahmed said Bahrain was continuing to attract foreign companies and create jobs in the financial services sector, thanks to its strong regulations and the growth of the Islamic finance industry there. Unlike several other countries in the Gulf, Bahrain has not injected money into its banks or financial companies. Mr Ahmed said the central bank was continuing to study the situation and would take any necessary action.

"I think what's important is that the Central Bank, being one of the best regulators in the Middle East, will continue to consult with companies and anything that needs to be done by the government will be addressed," he said. @Email:[e-mail]