A well-trained workforce is key to Bahrain's financial leadership

With fewer hydrocarbons resources than many of its Gulf neighbours, Bahrain’s status as a financial centre is crucial to its long-term economic development. One of the biggest concerns arising from the political unrest of 2011, therefore, was that is banking sector would see an exodus of brand names to other Gulf capitals. The decision by Crédit Agricole in late 2011 to move its regional headquarters out of Manama seemed to justify these fears, as did a subsequent relocation of employees by Japan’s Bank of Tokyo-Mitsubishi in mid-2012.

However, the mass movement of lenders that some anticipated never materialised and, while assets in the banking system declined modestly from $222bn at the close of 2010 to $194bn in November 2012, the pick-up in retail assets since December 2012 and a similar uptick in wholesale asset growth since early 2014 has amply demonstrated the sector’s resilience.

Nevertheless, questions regarding the future direction of Bahrain’s banking sector persist, stemming largely from the rapid advances in regulation and infrastructure seen in banking sectors across the region in recent decades.

When Bahrain first emerged as a significant banking sector in the 1970s and 1980s, its robust yet practicable regulatory regime was unique in the Gulf, and the Central Bank of Bahrain (CBB) continues to enjoy a reputation as a leading regulator in the region. The gap between it and some of its neighbouring jurisdictions has narrowed considerably, and with regulatory reform at the top of the agenda in markets such as the UAE, Qatar and Saudi Arabia, the central challenge facing those overseeing the development of Bahrain’s banking sector is how the nation can maintain its competitive edge in this new environment.

Working Culture

Bahrain has garnered a reputation as a socially liberal state by regional standards, accepting of external cultures, with a professional expatriate community that exists on a longer-term basis than elsewhere in the GCC. The level of banking knowledge within the local labour market is also impressive, thanks to the nation’s long history as a financial leader and government efforts to ensure that this accumulation of skills is suitably formalised.

Bahrain’s efforts to nurture a workforce suited to the demands of banks and other financial institutions date almost as far back as its emergence as a prominent banking player. The Bahrain Bankers Training Centre was established in 1981 to supply the growing number of banks domiciled in the kingdom with suitably qualified staff, starting out with fewer than 300 graduates at the end of its first intake cycle. Two years later the centre rebranded itself to Bahrain Institute of Banking and Finance (BIBF) to reflect a wider remit to serve the emerging financial sector.

Subsequent years have seen a ceaseless expansion in terms of both the amount of courses offered and numbers of graduates: today the BIBF runs more than 300 programmes in general concepts, such as banking and insurance, to more specialised areas of expertise such as advanced banking practices, accounting, IT, Islamic banking, and leadership and management disciplines. The institute also offers specialised programmes taught by leading market experts and tailor-made courses for the financial and corporate market, which gives banks the opportunity to specify the particular skills in which they would like to see their staff enabled.

Building Local Capacity

Since its inception, the BIBF has grown from graduating a few hundred students every year to annually rolling out 20,000 qualified Bahrainis into the labour market, or an estimated 200,000 over the past three decades. The quality of the BIBF’s output is on par with that found in similar intuitions in advanced economies across the world, thanks in large part to a range of international partnerships, such as the well-regarded MBA and MSc programmes in Public Administration and Human Resource Management from DePaul University in the US; the Leadership Development Programme (in collaboration with the University of Virginia’s Darden School of Business); and the University of Cambridge International Diploma in Management. In April 2014 the BIBF and the Institute of Banking from neighbouring Saudi Arabia signed an agreement to bolster ties, which includes the sharing of expertise and training programmes and is designed to enhance the financial services sector.

A number of recent additions to its programme have significantly enhanced its standing in the region. In October 2014, for example, it became the first educational facility in the MENA region to open a dealing room with which to provide students with a real environment for trading stocks and bonds. The facility comprises 22 trading stations equipped with market tools that link with Bloomberg and Thomson Reuters Eikon. Two months later the BIBF introduced an Islamic Finance Pathway programme developed in cooperation with the Chartered Institute for Securities & Investment (CISI), UK. The new programme is designed to augment the already existing CISI Islamic Finance Qualification and is seen as an important step in cementing Bahrain’s position as the region’s leading Islamic financial services centre (see Islamic Financial Services chapter).

Back & Mid-Office Ops

The presence of BIBF means Bahrain’s banking sector is well served by qualified individuals capable of operating at the highest levels of the industry. The country is also well placed to establish itself as a centre for back-and mid-office operations for the regional banking sector, and this above all distinguishes the domestic banking industry from its GCC rivals.

Manama is already home to a number of firms that have successfully tapped into local skills to provide services across the Gulf and beyond. The Manama-headquartered Arab Financial Services (AFS), for example, is the region’s leading provider of electronic-payments and consumer-finance outsourcing services. Established in 1984, it started life as a central processor for traveller’s cheques, took a brief detour into the money exchange arena, and established itself in its present field of credit card servicing in the 1990s. Today the company provides services to over 60 banks and financial institutions with more than 100 different card products, a business portfolio that has proved to be a lucrative one: in 2014 its net profits grew to $4.9m, while revenues increased by 11% year-on-year to reach $27.1m.

Around 70% of AFS’s revenue is derived from basic credit card processing, but an increasing share now comes from “value-added” operations of the type that Bahrain’s financially literate workforce is sufficiently well placed to provide. These include modules for authorisations, customer service carried out through AFS’s call centre, personalisation, fraud monitoring, statement issuing and dispatching, dispute and charge-back processing, reporting, settlement, and reconciliation and loyalty programmes.

“Thirty years ago, when we started, Bahrain was the defacto financial capital of the Gulf, so it was the obvious choice,” Neil Pavis, deputy CEO of AFS, told OBG. “Today, the central bank operates a regulatory system on par with the regulators in advanced economies, and is proactive in its approach to the sector. When the US Foreign Account Tax Compliance Act was introduced, for example, Bahrain implemented it immediately, whereas other jurisdictions had to be coerced by the Federal Reserve.”

That the majority of staff at AFS’s call centre are Bahraini demonstrates the potential of this service model in Bahrain. In a similar vein, Silah Gulf, which launched in Bahrain in 2009 as a joint venture between UK-based Merchants and Bahrain’s eGovernment Authority, has also recognised the advantages of the country’s finance-savvy workforce. The company provides a range of customer service solutions to various sectors, including telecoms, financial services, travel and tourism, retail and government, and has played a leading role in a rapidly expanding contact centre outsourcing segment which was worth somewhere between $70bn and $75bn in 2013, according to the Bahrain Association of Banks.

Ricardo Langwieder-Görner, CEO of Silah Gulf, has indicated that banks and other financial institutions offer strong potential for future expansion. “More than one-third of our current prospects come from the banking and finance sector so we are really pushing hard in this area both inside and outside Bahrain,” he wrote in the journal of the Bahrain Association of Banks, The Bahrain Banker, in early 2015.

The domestic, regional and international brands which call Manama home mean that Bahrain will continue to play a prominent role in the GCC banking industry for the future. However, a larger success story over the coming years may lie in the less visible activity of back- and mid-office operations which competing jurisdictions find so hard to replicate.