Bahrain Offshore Bank Account
The information provided below details the Bahrain banking system, and the opening of a Bahrain offshore bank account. You can learn about the laws and regulations that govern Bahrain offshore banking and local banks, as well as the Bahrain Monetary Agency which is the regulatory body.
To open a Bahrain offshore bank account, please select from the account types listed below:
Open an Investment Bank Account
If you have any additional questions and require further information as to our Bahrain offshore banking services, Contact DeltaQuest today.
The Bahrain Banking System
Banking started in Bahrain in the early 20th century when a branch of the Eastern Bank (now Standard Chartered Bank) commenced operations in 1920. This was followed by the establishment of the British Bank of the Middle East (now HSBC) in 1944, Bank of Bahrain (now National Bank of Bahrain) in 1957, as the first locally incorporated bank, and Arab Bank Limited in 1960. These four banks were adequate to meet the needs of the customers in that era, with trade finance and deposit facilities being offered. With the first oil boom in 1973 and the subsequent increase in economic activity, more commercial banks were set up – 15 between 1969 and 1977.
After the substantial increase in the oil price in the early 1970s, the Gulf countries became recipients of substantial funds. The existing banks in the region felt that they could play a role in reinvesting such funds through a physical presence in the region. However, these banks did not have sufficient capacity to deal with such large amounts of money. This led the Agency, which was created in 1973, to take the initiative to host offshore banking units, or OBU’s, which were intended to operate through Bahrain by providing a mechanism to invest the surplus liquidity of the region. The availability of OBU’s was further enhanced by the increasing desire of Bahrain to diversify its economic base. The first OBU’s to operate in Bahrain were Citibank and Algemene Bank (in 1975). The number of OBU’s reached 76 in 1984, but declined to 48 by 2002, due to international financial developments and a trend towards consolidation within and between banking groups. In 1977 the Agency introduced a third category of banking license, called an Investment Banking license (IBs), for banks intending to carry out investment business. The first of these banks was Bahrain Investment Bank (in 1977).
In recent years Bahrain has been characterized by a serious effort to modernize its economy and political system and has enjoyed particular success in positioning itself into becoming a major financial center, particularly in the field of Islamic banking. The offshore financial sector at the beginning of 2004 has assets of some US$70 billion and the daily foreign exchange turnover of all Bahrain’s financial institutions totals some US$4 billion.
Bahrain Monetary Agency
The Agency is the country’s central bank and regulator of the financial sector. By Decree No. 21/2002 the Bahrain Monetary Agency (BMA) has been empowered with broad authority to regulate securities industry. (BMA) become the sole regulator for the capital market in the Kingdom of Bahrain, the BMA’s Capital Markets Supervision (CMS) Directorate was set-up with the mandate to supervise and regulate the Kingdom’s capital markets; its chief priority being to maintain a transparent, fair and orderly market by upholding and enforcing international standards and protecting the investor, thereby protecting Bahrain’s integrity and reputation as the region’s financial hub. With overall responsibility for the primary and secondary markets, as well as financial intermediation, the BMA regulates and supervises all applications for the listing of securities and any other instruments offered to the general public, approving applications on the fulfillment of requirements and discloser. The Directorate also enforces international disclosure standards, in order to enhance the transparency in the marketplace, and supervises the stock exchange (and will approve the establishment of others in the future), the clearing, settlement, depository and custodial systems, brokerage firms and market makers.
All offerings of securities are required to comply with the Disclosure Standards. These disclosure standards regulates public offerings, listings and sales of securities in the Kingdom of Bahrain.
Trading and dealings in the listed securities has to be as per the treading rules and procedure at the Bahrain Stock Exchange. Off market dealing in listed securities are allowed in certain exceptional case with the approval of BMA.
Bahrain Banking Licenses
The BMA currently offers the following banking licenses:
- Full Commercial Bank license (‘FCB’);
- Offshore Banking Unit license (‘OBU’);
- Investment Bank license (‘IBL’).
In summary, FCBs are permitted to carry out all types of banking activities, in Bahraini Dinar as well as other currencies, and with residents as well as non-residents of Bahrain. OBUs may carry out all forms of banking activities, but only in foreign currency and with non-residents (with certain exceptions). IBLs are generally allowed to carry out traditional investment and merchant banking activities, but again only with non-residents of Bahrain.
Banks may operate these licenses either on a conventional basis, or according to Islamic banking principles. The BMA’s regulations for conventional banks are contained in Volume 1 of the BMA Rulebook; those for Islamic banks in Volume 2 of the Rulebook. (Banks offering Islamic products through “Islamic windows”, as part of a mix of Islamic and conventional products, are subject to Volume 1.) The BMA’s licensing requirements and processes for the above license categories are set out in full in these two Volumes, in Module LR (Licensing Requirements). These Modules also set out the precise scope of activities permitted under each of these license categories.
Islamic Finance
Bahrain is the leading center for Islamic finance in the Middle East region. The first Islamic bank in Bahrain was established in 1979, when Bahrain Islamic Bank was licensed. Since then, the sector has grown considerably, satisfying a growing desire by customers to transact their financial activities in accordance with the Islamic sharia. A cornerstone of Islamic banking is the principle of profit sharing.
There are currently 28 Islamic financial institutions licensed in Bahrain, including 5 full commercial banks, 16 investment banks and 3 offshore banking units.
Islamic banks provide a variety of products, ranging from traditional Islamic structures such as Murabaha, Ijara, Mudaraba, Musharaka, Al Salam and Istisna’a, restricted and unrestricted investment accounts, syndications and other structures used in conventional finance, which have been accordingly modified to comply with sharia principles.
A comprehensive prudential set of regulations for Islamic banks was introduced in early 2000 by the BMA. This is referred to as the Prudential Information and Regulatory Framework, or PIRI. The framework covers areas such as capital adequacy, asset quality, the management of investment accounts corporate, governance and liquidity management.
The Accounting and Auditing Organization for Islamic Financial Institutions – was established on 1 Safar, 1410H (corresponding to 26 February 1990) and established the following year in Bahrain as an international, autonomous, non-profit-making body. It is the leading international standard setter for Islamic financial institutions, in the field of accounting, auditing, governance and transparency. It works closely with bodies such as the International Accounting Standards Board; its standards are based on international accounting standards. All Islamic financial institutions licensed in Bahrain have to comply with AAOIFI standards.
The Liquidity Management Center (LMC), established in Bahrain in 2002, seeks to develop an active secondary market for short-term sharia compliant treasury products. These comprise of different asset pools with varying risk and return profiles and different tenors. Islamic banks and corporations with surplus liquidity form the primary investor base for the sukuks (short-term Islamic security).
International Islamic Financial Market (IIFM) began operations in April 2002. It arose out of a cooperative agreement between the Islamic Development Bank, Bahrain Monetary Agency, the Central Bank of Indonesia, the Labuan Offshore Financial Services Authority (representing Malaysia), the Central Bank of Sudan and the Ministry of Finance of Brunei Darussalam. The primary purpose of the IIFM is to provide a cooperative framework to ensure the continued growth of an Islamic financial market, based on sharia rules and principles, as a viable alternative to the conventional banking system.
To promote the harmonization and convergence of sharia interpretations in developing Islamic banking products and practices which are universally acceptable;
To encourage a large number of Islamic financial institutions to participate in the market by introducing a wide range of sharia compliant products and the creation of an active secondary market thus providing liquidity to the instruments traded in the market.
The Bahrain Development Bank
Bahrain’s primary financial development institution, the Bahrain Development Bank (BDB), was established in 1992 to promote and foster investment in the industrial, commercial and business service sectors. The BDB provides a range of financing arrangements to promoters of small and medium size projects, which includes:
- Short- and long-term composite loans for financing capital assets and a core portion of working capital;
- Venture capital in the form of equity participation in start-ups as well as existing projects;
- Arrangement of equipment leases;
- Financing of working capital needs for the purchase of raw materials;
- Arranging of export financing for goods manufactured in Bahrain.
The Bank maintains a maximum loan exposure of BD500,000 (US$1,326,260) per project. Given the Bank’s objective of promoting investment in Bahrain, it is able to offer:
- Excellent interest rates;
- Flexible grace periods (of up to 3 years);
- Flexible repayment terms;
- Highly competitive fee arrangements.
Eligible projects must be registered and licensed in accordance with the laws of the Kingdom of Bahrain. They should be economically viable and be supported by an independent feasibility study produced by one of the recognized consulting houses. The BDB provides services to investors of any nationality, but demands that they have good credit standing with sufficient financial resources to provide further contribution to the project. The project must have an appropriate management structure in place, proper accounting records should be maintained and the assets of the project should be adequately insured, with the BDB named as beneficiary. Project promoters will be required to execute security documentation in accordance with the laws of Bahrain, and monthly or quarterly management accounts, as well as audited annual accounts must be submitted on time.
Commercial activities that are not eligible for BDB financing in accordance with its statutes are the purchase of real estate, the repayment or refinancing of debt obligations, the purchase of consumer goods and the financing of wholesale and/or retail operations.
Some of the major commercial Bahrain banks operating:
AL Baraka Islamic Commercial Bank E.C.
Ahli United Bank (Bahrain) B.S.C.
Al Salam Bank-Bahrain
Arab Bank plc
BNP Paribas
Bahrain Islamic Bank B.S.C.
Bahraini Saudi Bank B.S.C.
Bank of Bahrain and Kuwait B.S.C.
Citibank N.A.
Gulf Finance House Commercial Bank B.S.C.
HSBC Bank Middle East Limited
Habib Bank Limited
Kuwait Finance House (Bahrain) B.S.C.
National Bank of Abu Dhabi
National Bank of Bahrain BSC
National Bank of Kuwait S.A.K.
Rafidain Bank
Shamil Bank of Bahrain E.C. (Islamic Bankers)
Standard Chartered Bank
State Bank of India
The Housing Bank for Trade and Finance – Jordan
United Bank Limited
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