06/08/2020 09:47 AST

Banks in Bahrain must play a major role in helping the national economy recover from the global Coronavirus (Covid-19) pandemic and, to do so effectively, will need the ongoing support of all stakeholders, particularly the Government, said a senior Bahrain banker.

Ahmed Abdul Rahim, who is the Chief Executive Officer of Ithmaar Bank, a Bahrain-based Islamic retail bank, as well as the Deputy Chairman of the Bahrain Association of Banks (BAB), said this shared focus on economic recovery will help shape the kingdom’s new, post-Covid-19 reality and pave the way for continued economic growth and prosperity.

“The Kingdom of Bahrain has earned glowing international praise and recognition, including from the World Health Organization, for its handling of the global Covid-19 outbreak,” said Abdul Rahim. “This was due, largely, to the quick and decisive leadership of the government, as well as the full and prompt support of all aspects of the society,” he said.

Focus on the most affected

“The recent decision to focus government support on the most affected industries in the private sector is another step in the right direction and, with focus now gradually shifting to addressing the economic impact of this outbreak, we must continue in this same spirit of decisive leadership and close collaboration,” said Abdul Rahim.

“We must aspire to maintain this internationally-celebrated approach and continue to set a standard for others to follow,” he said. “The decision to provide government-funded wage support exclusively to the 12 most affected private sector industries, for example, will direct aim where it is needed most,” said Abdul Rahim. “Although all industries were affected by the global outbreak, some industries were very badly hit. If these industries, some of which have been completely shut for months, do not survive the extended slowdown, then the overall economy cannot fully recover. It is important, also, to remember that trying to provide support to all affected industries will risk spreading available resources too thin, effectively robbing everyone of any real support,” he said.

“The same logic is true for individuals,” said Abdul Rahim. “We are all affected, but some of us a lot more than others. To fully recover, we will need to focus our efforts on trying to help those who are most impacted,” he said.

What's bank' role?

“For our part, banks must recognise the important role we must play in helping ease the economy back to its earlier growth trajectory and, perhaps more importantly, to helping both individuals and businesses absorb and, ultimately, recover from the economic impact of Covid-19,” said Abdul Rahim.

“We must recognise the importance of actively supporting the communities in which we operate, and we must always remember that we are all in this together,” he said.

“To play their role effectively, banks are, in turn, supported by the decisions taken by government and the Central Bank of Bahrain (CBB), the Kingdom’s banking and financial services regulatory, to protect the stability of national economy,” said Abdul Rahim. “This included decisions to cut interest rates and to reduce reserve requirements. Together, these decisions provided banks the flexibility necessary to support national efforts to absorb the economic impact of the pandemic,” he said.

“Bahrain is widely recognised as one of the region’s key banking and financial services hubs,” said Abdul Rahim. “This was further reinforced by the kingdom’s handling of the economic aspects of the global Covid-19 outbreak, with the government quickly announcing far-reaching initiatives and the banking and financial services industry complying immediately,” he said.

Loan deferment a huge step

“One such initiative was the six-month deferment of financing instalments,” said Abdul Rahim. “This went a long way in helping both individual and corporate customers absorb the economic impact of the outbreak and, subsequently, avoid a dangerous economic downward spiral that would have had a catastrophic effect on the national economy,” he said.

“This same initiative, however, effectively eliminated liquidity from the banking and financial services industry, potentially stopping banks from being able to service their own financial obligations or, at the very least, dramatically reducing their ability to provide new financing for their clients,” said Abdul Rahim. “This would have had an equally catastrophic effect on the national economy if the Central Bank of Bahrain (CBB), the Kingdom’s banking and financial services regulator, had not stepped in to provide the necessary liquidity. It is an example of the type of support and close cooperation necessary to help steer the economy back on track,” he said.

“The banking and financial services industry is a key pillar of the national economy, accounting for 16.5 percent of the Kingdom’s GDP,” said Abdul Rahim. “In addition to creating more than 14,000 jobs, most of them for Bahrainis, the industry also plays a key role in supporting economic development by providing financing both to individuals and to businesses. The importance of this role cannot be overstated, and we must live up to our responsibilities,” he said.

Preparing for the next step

“For banks, the most immediate focus will be on preparing for the end of the installment deferment period,” said Abdul Rahim. “It is important to ensure that we do everything possible to ensure that both individuals and businesses can ease back into addressing their financial obligations. To do so, some banks in Bahrain are developing several programmes to help ease the transition, including restructuring funds, reducing installments and other initiatives that will help to improve the financial position,” he said.

“At Ithmaar Bank, we closely monitor the financial conditions of our individual and corporate customers and, when necessary, we contact them to better understand how the current circumstances are affecting them and how they are addressing the challenging conditions,” said Abdul Rahim. “We also study their future plans in order to ensure that we are ready to provide any necessary support both in meeting their requirements and in helping them meet their financial obligations, as well as to help further improve our own products and services,” he said.

“We also closely monitor general economic changes, as well as changes in the banking and finance industry, as these indirectly affect the financial strength of customers. Monitoring these changes also provides important insights that help us restructure and continuously improve our financing products,” said Abdul Rahim. “As a result, we are prepared to respond quickly and efficiently to changing market requirements and we are well positioned to ensure we provide the products and services our customers require,” he said.

What are risks and opportunities in new normal?

“We must also recognise that many things have changed, some irreversibly,” said Abdul Rahim. “This creates both dangerous risks and great opportunities and, as financial institutions, we have a responsibility to help the economy safely navigate through these challenging, unchartered waters. We also have a responsibility to help shape and define the new, post Covid-19 normal.

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