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Al Maraj, right, with Banks during the open ‘townhall’ discussion

Bahrain cbank tightens rules on banker bonuses

MANAMA, February 25, 2015

New rules that restrict big bonuses for bankers in Bahrain have been implemented by the Central Bank of Bahrain (CBB) since July last year, according to its top official.

Central Bank of Bahrain Governor Rasheed Al Maraj said the amendments to the CBB Rulebook on remuneration rules for licensed banks were brought in to better protect shareholders and other stakeholders, reported the Gulf Daily News (GDN), our sister publication.

Responding to questions from bankers, Al Maraj said the new rules are fair and in line with international best practices, including those recommended by the Basel Committee.

Among other things, the rules specify fixed and variable components of remuneration, he said.

Al Maraj was speaking at an open 'town-hall' discussion during the Fourth Euromoney GCC Financial Forum moderated by Euromoney Conferences director for emerging markets Richard Banks.

More than 600 financial experts representing 18 countries have gathered for the two-day forum at the Sofitel Bahrain Zallaq Thalassa Sea and Spa.

According to the rulebook, the rules apply only to 'approved persons' and 'material risk takers' with a combined annual salary of BD100,000 ($264,096) or more - including all benefits and allowance.

Banking experts told the GDN that a key aim of the new rules was to discourage bankers from short-sighted high risk taking.

They said the rules require that when remuneration (or bonus) is awarded based on new projects or deals, it should be linked to the outcome of a deal or project ie essentially aligned with risk.

The rulebook says accrual and deferral of variable remuneration would not oblige the bank to pay the variable remuneration, particularly when the anticipated outcome has not materialised or the bank's financial position did not support such payments.

The experts said remuneration of material risk takers has been intimately linked to performance of the bank.

On the outlook for Bahrain's banking sector, the CBB governor said the drop in oil prices had not affected liquidity in the banking system and he expected commercial bank lending to pick up after a slump.

“Although overall lending may have dropped because of repayment, there is underlying growth in consumer lending and some corporates are still doing well.

“There are big projects coming on-stream within the next few years and lending will start picking up,” he said.

Al Maraj however said that it was difficult to predict what will happen under the circumstances.

“So far the liquidity is good. We don't see any systemic risk even compared to when we had lower oil prices, we have not seen liquidity drying up.”

He did agree that banks might become more conservative in lending because of the lower oil prices.

On rising operating costs for smaller banks due to regulatory and international requirements, Al Maraj said there were too many banks in Bahrain and the CBB had been encouraging mergers and consolidation for several years.

“We need stronger and bigger banks.”

The government has no immediate plans to issue sovereign Islamic bonds or sukuk and would wait until the new state budget had been approved, he said.

Banks told the GDN that the interesting aspect of Bahrain's banking and financial sector was about its regulatory environment that acted as a differentiator between financial jurisdictions.

“Bahrain has the best regulations in the region. There are some exceptionally good institutions here. We believe it has a strategic position and a competitive advantage when compared with others in the region.”

On the sidelines of the forum Mr Al Maraj told our sister paper Akhbar Al Khaleej that Bahrain has attracted more than $60 million worth of investments last year, according to latest statistics released by EDB.

He said it is the only Arab country that doesn't impose taxes on investment and has no restrictions on foreign ownership of business.

“Bahrain also enjoys the most flexible laws and legislations in terms of commercial trading in the Arab region,” Al Maraj said. - TradeArabia News Service




Tags: Bahrain | CBB | bonus | rules | banker |

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