Manama’s status as a regional financial centre has attracted some of the world’s leading banks to Bahrain, but it has also proved fertile ground for a number of domestic giants. An examination of the nation’s five largest locally incorporated lenders reveals the diversity of the market: Islamic banks rub shoulders with conventional; young banking groups with an international focus vie for business with national champions which have built their balance books within the economy. All have faced similar challenges lately. The aftershocks of the global economic crisis have combined with local and regional political upheavals to reduce client activity and widen credit spreads. Yet all of Bahrain’s largest banks, measured by total assets, have turned in robust performances that augur well for the sector’s future.

AHLI UNITED BANK (AUB): With total assets of $28.3bn as of December 31, 2011, the AUB Group, the flagship of which is the AUB, is the largest locally incorporated lender in Bahrain. Established in 2000 with the merger of the United Bank of Kuwait and Al Ahli Commercial Bank, it operates in the local market under a retail licence, but its network of subsidiaries and associated companies provides it with corporate, private and Islamic banking capacity across a number of regions. AUB UK is a wholly owned operation, while the group has an 85% stake in AUB Egypt, a 75% stake in AUB Kuwait, a 60% stake in Commercial Bank of Iraq and smaller interests in Libya, Oman and Qatar. It also provides its sharia-compliant services through the Al Hilal brand name. In 2008 it broadened its product offerings further with the signing of a memorandum of understanding with the UK-based Legal & General Group to establish a joint venture to provide life coverage, health insurance and pension plans. Its key priorities in 2011 were boosting liquidity growth and undertaking capital preservation measures, which included raising $290m through the issuance of Tier-1 mandatorily convertible preference shares and a Tier-2, 10-year subordinated term debt. AUB Bahrain reported a record net profit of $310.6m for the year ending December 31, 2011, a gain of 17% on the previous year which it attained while maintaining credit quality. The nonperforming loans level of 2.5% showed little movement from the 2.4% of 2010, while provisioning against loan losses declined by 14.4% to a total of $129.8m. The strategy that it has already successfully deployed – a balance between targeted corporate expansion focused on the Gulf region and the pursuit of organic growth – is expected to form the basis of the bank’s development in the future.

ARAB BANKING CORPORATION (ABC): With total assets of $25bn at the end of 2011 ABC, another international, universal bank headquartered in Manama, represents the nation’s second-largest lender. Founded in 1980, the bank’s footprint spreads across 21 countries in the GCC, MENA, Europe, the Americas and Asia, including Algeria, Bahrain, Brazil, France, Germany, Iran, Iraq, Egypt, Lebanon, Italy, Jordan, Singapore, Sweden, Tunisia, Turkey, Libya, UAE, UK, Grand Cayman, Russia and the US. Beyond its retail activity, it has built a reputation as a market leader in trade finance, treasury, project and structured finance, syndications, corporate and institutional banking, and Islamic banking. The group’s geographical diversification helped it achieve a 45% year-on-year growth in net profit in 2011, to reach $204m – a result largely accounted for by strong revenues from treasury, trade finance and retail business lines in the Arab region and a strong performance by its Brazilian subsidiary. Throughout the year the group continued its programme of de-risking and deleveraging the balance sheet, resulting in a comfortable liquid assets-to-deposits ratio of 64%. Provisions against regional and international exposures also decreased in 2011, from the $77m of the previous year to $28m. The group’s sharia-compliant arm, ABC Islamic Bank, showed a similar pattern of growth, seeing its net profit for 2011 rise 293% on the previous year to reach $8.1bn and impairment provisions falling from $8.6m to $0.5m. The intensification of cooperation between ABC Islamic Bank and the wider group’s activities in the MENA region will form a central pillar of ABC’s expansion strategy in the short term. Meanwhile, the group’s key European subsidiary, ABC International Bank London, appointed a new management team in January 2012 which will oversee the development of ABC’s European unit.

AL BARAKA BANKING GROUP: Al Baraka Banking Group, with a total assets of $17.2bn at the close of 2011, is the third-largest banking conglomerate headquartered in the Kingdom. It is also the largest Islamic banking group based in Bahrain, offering retail, corporate and investment banking and treasury services according to the principles of sharia law.

The bank’s geographical presence extends across 12 countries in the form of subsidiary banking units and representative offices – including Jordan Islamic Bank, Al Baraka Bank Pakistan, Banque Al Baraka D’Algerie, Al Baraka Bank Sudan, Al Baraka Bank South Africa, Al Baraka Bank Lebanon, Al Baraka Bank Tunisia, Al Baraka Bank Egypt, Al Baraka Turk Participation Bank, Al Baraka Bank Syria and representative offices in Indonesia and Libya. While components of the group date back to 1978, it has existed in its present form since 2002, and underwent its initial public offering as recently as 2006.

Since that time it has grown steadily, establishing its operations in Syria and Indonesia and maintaining a strong financial performance that saw it post a net profit of $212m in 2011, a rise of 10% on the previous year. The bank attributes its results to an ongoing strategy of business expansion, improving asset quality, increasing productivity and diversifying income sources within the group. Recent expansion activity includes the 2011 acquisition of 60% of the Saudi-based Al Tawfeek Financial, now rebranded as Itqan Capital, and the opening of new branches in Pakistan, Turkey, Jordan, Algeria, Egypt and Bahrain.

BBK: BBK (formerly the Bank of Bahrain and Kuwait), with assets of $7.3bn as of December 2011, is the largest of the domestic banks with a predominantly local focus. It was established in 1971 and has in the intervening years become a pioneer in the domestic banking sector, most notably through the “financial mall” concept it has introduced to Manama. The retail-focused centres bring numerous services, such as credit card partners, telecommunication operators, personal finance advisors and insurance providers, under one roof, and BBK now operates seven such centres in Bahrain. Beyond its retail activities, BBK offers lending, treasury and investment services to the corporate sector in Bahrain and to businesses beyond the local market through the operations it runs in Kuwait, India and Dubai. It has also begun to widen its product portfolio by establishing subsidiaries in the areas of financial services, Islamic investment, mortgages and credit cards.

The net profit of $84.3m the bank achieved in 2011 represented an 18.79% decrease on the previous year, largely attributable to a 15.28% drop in non-interest income as a result of the sale of certain non-trading investments. Net profit was also adversely affected as a result of an increase of provisioning levels in response to unexpected losses caused by changes in fair market value of certain investments. Net interest income, however, grew by 9.64% on the back of a growing loan and advances portfolio, and with a recently re-ordered balance sheet, no exposures to the troubled economies of southern Europe and an overall European exposure of around 15%, BBK considers its foundations robust enough to deliver the objectives set out in its 2010-12 strategic plan: continued organic growth at home and the expansion of its foreign branch network.

NATIONAL BANK OF BAHRAIN (NBB): With total assets of around $6bn in 2011, NBB is considered the leading provider of commercial and retail banking services in the domestic market. While it operates branches in Abu Dhabi and Riyadh, its focus remains largely on Bahrain where, with 25 outlets, it operates the largest branch network in the country. Founded in 1957 as the nation’s first locally owned bank, NBB’s ownership structure has been key to its ability to attract business and play a central role in the development of the nation: Mumtalakat Holding Company, effectively the government’s investment arm, retains a 51% stake in the company, while government interest is further represented by the Pension Fund Commission, which owns 6.24%.

The bank’s stated strategy for 2012 is to increase the business and revenue streams while lowering costs, and efforts to these ends helped it to achieve a net profit of $121.4m in 2011, a 6.1% increase on the previous year, despite setting aside $4m for loan loss provision and $6.1m towards voluntary impairment on equity investments. Increasing domestic market business and pursuing selective regional business opportunities while efficiently managing operation costs are set to remain the bank’s focus for 2012.