Rasheed Mohammed Al Maraj: Improving risk management in Bahrain
Address by His Excellency Rasheed Mohammed Al Maraj, Governor of the Central Bank of
Bahrain, at the 2nd Annual GCC Regulators' Summit, Manama, 19 February 2008.
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Good morning Ladies and Gentlemen,
It is a pleasure to be here today at the 2nd GCC Regulators' Summit, which the CBB has
been delighted to support. I am happy to see so many of our colleagues from the region
participating in this important conference, which aims to promote dialogue and discussion
among the region's financial regulators and the industry. Thank you to Mrs. Jane Diplock and
to all of you for being here.
This year's conference is taking place against a backdrop of fresh challenges being posed by
a number of global factors and their interplay with regional developments. The US subprime
crisis and the ensuing credit crunch, as well as the Societe Generale incident compel us to
proceed with caution, despite the boom all around us here in the region.
In particular, these incidents underscore the need for good risk management and effective
internal controls by financial institutions. Indeed, both these elements are proving to be
critical to ensuring the stability of individual financial institutions and financial systems.
The role of the regulator in addressing these challenges is crucial. We can provide the
guidance and create the appropriate regulatory framework to enable the sound and stable
conduct of financial services and financial institutions.
Improving risk management practices of banks is an important component of the work being
done by the Central Bank.
Moreover, the CBB has introduced an innovative approach to the application of Basel II,
Pillar One requirements to our Islamic financial institutions.
Although Islamic financial products are not explicitly mentioned in Basel II, the CBB has
introduced, effective this year, a comprehensive Basel II compliant framework which provides
for appropriate capital treatment of products such as Murabaha, Ijara, Istisna'a, amongst
others.
This will ensure that regulations of international standards are applied to Islamic financial
institutions which will further enhance the reputation of what has become such a prominent
segment of Bahrain's financial services industry.
The CBB is also addressing the challenges faced by certain investments made by banking
institutions, especially banks' exposure to the real estate market, with a view to encouraging
banks to maintain a more balanced portfolio.
We are fully cognizant of the evolving needs of the financial services industry and it is our
endeavour to proactively adapt to them. Thus it is that, in 2002, Bahrain was the first country
in the region to adopt a single regulator model for the financial services industry and create a
one-stop shop for today's complex and internationally active financial firms, whose product
offerings are not restricted purely to one type of financial service.
The single regulator structure has also enabled the CBB to apply uniform standards of
regulation and supervision to all our licensees, be they banks, insurance firms or capital
market players. The 6-volume CBB Rulebook is at the very core of our regulatory
development and enhancement programme, which is driving the continued growth and
development of Bahrain's financial sector.
A forward-looking, market-enabling regulatory framework for the insurance and takaful
industry has helped attract a critical mass of takaful and retakaful providers in Bahrain. All
this is providing the momentum for the double-digit growth we are seeing in the insurance
and takaful sector.
The CBB is also focusing much attention on upgrading and enhancing regulations governing
capital markets, which are central to the functioning of a modern, sophisticated financial
centre.
The recent volatility in international stock markets underscores the need for transparency
which the CBB has achieved through enhanced disclosure standards introduced as of the
start of this year.
Nevertheless, adapting and adopting new and enhanced regulations is not a panacea for
maintaining sound and stable financial institutions and financial systems.
We, the regulators, and the industry need to work together to maintain the integrity of our
institutions, financial systems and confidence in our jurisdictions.
I can assure the industry that the CBB strives to be an even-handed, transparent regulator
and that we are open to suggestions from the industry.
Finally, I wish you a pleasant stay in Bahrain and a fruitful discussion during the conference.
Thank you.