How does Bahrain’s general economic environment affect the financial sector?
REYADH YOUSIF SATER: We are in the midst of interesting and complex times, not only in Bahrain but also across the region and the rest of the world. There are currently significant geopolitical challenges facing the world like the fact that major economies such as China are growing at a slower pace, while at the same time other economies are diversifying.
The drop in oil prices has provided an opportunity for Bahrain to step up its diversification drive. The kingdom, aided by a spending rationalisation policy and using resources from the GCC Fund, is still able to finance major capital projects that will keep the economy growing. With regards to financial institutions, they do face some challenges, however, I am confident that they are being properly addressed.
First is the challenge of maintaining liquidity. Banks need to comply with the liquidity ratios in line with Basel III requirements as set by the Central Bank of Bahrain (CBB), but also need to effectively allocate their resources in order to handle risk and reduce opportunity costs. Liquidity has to be kept at an optimum level, and institutions that manage this trade-off properly will be better positioned to succeed.
Compliance with these regulations can be challenging in the short term, but in the long term they will benefit the whole sector. There is also the challenge of rationalising human, financial and technological resources to be able to add value to customers while maintaining an efficient cost base. We have addressed this by forming a comprehensive risk management policy, where diversification across sectoral and geographical lines is crucial.
What actions can financial institutions take in the face of Bahrain’s debt downgrade?
SATER: Credit ratings can either improve or deteriorate over time, but I expect that the fiscal situation in the country is going to adjust in the medium term and this will have a positive impact on Bahrain’s sovereign ratings. However, in the short term we face rising costs of financing, which prompts us to think seriously about the sources of funding needed to continue financing growth.
Financial institutions need to search for more opportunities, while also having a sound risk management policy. They have to be able to diversify between the local and international markets, and among different lines of business. Furthermore, they need to continuously innovate, encourage partnerships, and expand and enhance product and service offerings in order to ultimately create new opportunities and impact their balance sheets positively.
What are your main concerns in terms of cybersecurity for Bahraini banks?
SATER: We cannot underestimate any threat or fall into a comfort zone that might cause us to stop investing in this area. Every hour there are new security threats, and we need to make an effort to anticipate them by keeping all systems upgraded.
One important aspect of security is awareness in the workforce. This is important so that businesses can avoid phishing and other types of social engineering techniques that can be used to overcome even the strongest systems. This also includes maintaining openness between employees and their superiors so that they are not afraid to speak up when they receive a suspicious email.
CBB has also issued detailed cyber security guidelines and has taken initiative to raise awareness levels that are very appreciable.
How would you rate the role played by the CBB?
SATER: The CBB has been a leader in terms of introducing best practices in the local financial system, and this is recognised internationally. Under the leadership of Rasheed Mohammed Al Maraj, it has been a beacon of stability and credibility in difficult times, and its monetary policy framework and exchange rate policy have benefitted the entire economy.
The implementation of a set of guidelines to comply with Basel III requirements, outsourcing and cyber security are other examples of this drive for stability and desire to generate trust in the economy. Additionally, the systematisation of the regulations in a very clear and differentiated rulebook makes most regulations very clear to all relevant parties.
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