DUBAI: Bahrain is still in the early stages of a series of bank mergers designed to strengthen the sector in the face of regional competition, the central bank governor said.

The tiny kingdom’s banking industry, once the most vibrant in the Gulf, was hit hard by the global financial crisis and, since 2011, by political unrest which has deterred some foreign investment.

But Rasheed Al Maraj said there were signs of recovery in the sector, which would be aided by a central bank policy of encouraging mergers and acquisitions.

Islamic lender Al Salam Bank said in September it had agreed to merge with fellow Bahraini lender BMI Bank, an affiliate of Oman’s Bank Muscat, through a share swap. The deal is expected to create the kingdom’s fourth-largest commercial bank. 

Khaleeji Commercial Bank, 47 percent owned by Gulf Finance House, said in June that it was evaluating a potential merger with local lender Bank Al Khair. 

And in March, National Bank of Bahrain and a local pension fund bought a 51.6-percent stake in Bahrain Islamic Bank  from Kuwait’s Investment Dar in a deal worth around BD34.9m ($92.6m). 

Maraj, in an email interview during the Reuters Middle East Investment Summit, said the merger wave was still only starting and would eventually have a bigger impact on the sector.

“What has evolved to date is the beginning of what the CBB believes will be a structured, focused, and properly implemented series of mergers and acquisitions which are designed to enhance both the specific institutions and the overall health and strength of the financial industry,” he said.

“By doing this, Bahraini banks will be better equipped to compete in the regional markets.”

The central bank lists 75 conventional bank licensees and 24 Islamic bank licensees in Bahrain, a large number for a country of just 1.3 million people. 

Bahrain has faced sporadic political unrest and demonstrations since February 2011, when mass protests led by the mostly Shia opposition were suppressed by the Sunni-led government.

This, along with damage to the international banking system from the global financial crisis, contributed to a drop in the combined assets of wholesale banks in Bahrain from $156.7bn at the end of 2010 to $118.3bn in August this year, according to central bank data.

Maraj said that in the wake of the global crisis, banks in Bahrain had restructured their businesses by shifting focus towards relatively stable activities and reducing their real estate exposure. 

Most international banks were focusing on their domestic markets. Reuters