Financial Stability Directorate Financial Stability Report February 2014 Financial Stability Report February 2014 Production: Financial Stability Directorate Central Bank of Bahrain PO Box 27, Manama Kingdom of Bahrain www.cbb.gov.bh The Financial Stability Report (FSR) is a semi-annual report prepared by the Financial Stability Directorate. It is available in PDF format in the Publications and Data section at http://www.cbb.gov.bh. Central Bank of Bahrain Financial Stability Report- February 2014 Table of Contents Table of Contents ................................................................................................................................... i List of Tables ....................................................................................................................................... iii List of Charts ........................................................................................................................................ iv Preface .................................................................................................................................................... 1 Executive Summary .............................................................................................................................. 2 Part I: Recent Developments in the International Financial Markets ............................................. 5 1. Financial Stability Overview ....................................................................................................... 6 1.1 Overview .................................................................................................................................................. 7 1.2 Global Macro-financial Environment ...................................................................................................... 8 1.2 Recent Trends in the Global Economy ..................................................................................................... 8 1.3 Recent deveopment in the Bahraini financial sector .............................................................................. 14 1.3.1 Assessing the resilience of the Bahraini financial sector .............................................................. 14 1.3.2 Is the Bahraini Banking system resilient? ..................................................................................... 22 2. Non-Financial (Household and Business) Sector Overview ................................................... 24 2.1 Overview ................................................................................................................................................ 25 2.2 The Bahraini Households Sector ............................................................................................................ 25 2.3 The Bahraini Corporate Sector............................................................................................................... 27 2.4 Construction and Real Estate ................................................................................................................. 28 2.5 Overall Assessment of the Non-Financial Sector .................................................................................... 29 Part II: Performance of the Banking Sector..................................................................................... 30 3. Conventional Banks ................................................................................................................... 31 3.1 Overview ................................................................................................................................................ 32 3.2 Conventional Retail Banks ..................................................................................................................... 32 3.3 Conventional Wholesale Banks .............................................................................................................. 36 3.4 Overall Assessment of the Conventional Banking Sector ...................................................................... 39 4. Islamic Banks .............................................................................................................................. 40 4.1 Overview ................................................................................................................................................ 41 4.2 Islamic Retail Banks ............................................................................................................................... 41 4.3 Islamic Wholesale Banks ........................................................................................................................ 44 4.4 Overall Assessment of the Islamic Banking Sector ................................................................................ 46 Table of Contents i Central Bank of Bahrain Financial Stability Report- February 2014 Part III: Developments in the Equity Market and Payment Systems ........................................... 47 5. Performance of Equity Market ................................................................................................. 48 5.1 Bahrain Market Trends .......................................................................................................................... 49 5.2 GCC Market Trends ............................................................................................................................... 52 5.3 Overall assessment of the equity market ................................................................................................ 53 6. Payment and Settlement Systems ............................................................................................. 54 6.1 Overview ................................................................................................................................................ 55 6.2 Retail Payments ...................................................................................................................................... 55 6.2.1 Cheques and paper based instruments ......................................................................................... 55 6.2.2 E-Payment systems ....................................................................................................................... 57 6.3 Wholesale Payments ............................................................................................................................... 62 6.4 Payment system and the degree of the financial inclusion in Bahrain ................................................... 63 Annex: Financial Soundness Indicators ............................................................................................ 65 Table of Contents ii Central Bank of Bahrain Financial Stability Report- February 2014 List of Tables Table ‎1-1: Evolution of the size of the Banking sector in Bahrain since 2007 ..................................................... 15 Table ‎3-1 Capital Provisions Ratios for Local Conventional Retail Banks .......................................................... 32 Table ‎3-2: NPL Figures for Conventional Retail Banks ....................................................................................... 33 Table ‎3-3:‎Retail‎Banks’‎Impaired‎Loan‎Ratios‎by‎Sector‎(%‎of‎gross‎loans‎to‎the‎sector) ................................. 33 Table ‎3-4:‎Distribution‎of‎Local‎Retail‎Banks’‎Lending‎(%‎shares)* .................................................................. 34 Table ‎3-5:‎Distribution‎of‎Overseas‎Retail‎Banks’‎Lending‎(%‎shares)* ............................................................. 34 Table ‎3-7: Capital Provisions Ratios for Local Conventional Wholesale Banks.................................................. 36 Table ‎3-8: NPL Figures for Conventional Wholesale Banks................................................................................ 36 Table ‎3-9:‎Wholesale‎Banks’‎Impaired‎Loan‎Ratios‎by‎Sector‎(%‎of‎gross‎loans‎to‎sector) ............................... 37 Table ‎3-10:‎‎Distribution‎of‎Local‎Wholesale‎Banks’‎Lending‎(%‎shares)* ........................................................ 37 Table ‎3-11:‎Distribution‎of‎Overseas‎Wholesale‎Banks’‎Lending‎(%‎shares)*.................................................... 38 Table ‎4-1 Capital Provisions Ratios for Islamic Retail Banks .............................................................................. 41 Table‎4-2: NPF Figures for Islamic Retail Banks .................................................................................................. 41 Table ‎4-3:‎Islamic‎Retail‎Banks’‎NPF‎Ratios‎by‎Sector‎(%‎of‎gross‎facilities‎to‎sector) ..................................... 42 Table ‎4-4:‎Distribution‎of‎Islamic‎Retail‎Banks’‎Lending‎(%‎shares)* ................................................................ 42 Table ‎4-5: Liquidity Measures for Islamic Retail Banks ..................................................................................... 43 Table ‎4-7 Capital Provisions Ratios for Islamic Wholesale Banks * ................................................................... 44 Table‎4-8: NPF Figures for Islamic Wholesale Banks .......................................................................................... 44 Table ‎4-9:‎Islamic‎Wholesale‎Banks’‎NPF Ratios by Sector (% of gross facilities to sector) .............................. 45 Table ‎4-10:‎Distribution‎of‎Islamic‎Wholesale‎Banks’‎Lending‎(%‎shares)* .....................................................