Overview of the banking sector in Bahrain
Implementation of new directives across banking landscape shows promise of a sophisticated sector
During 2016, the Central Bank of Bahrain (CBB) continued to use a number of monetary policy measures aimed at maintaining the smooth functioning of financial markets in Bahrain. These measures included a range of monetary policy instruments as well as interest rate actions.
Key policy interest rates
Based on the U.S. Federal Reserve Bank’s decision to raise interest rates on December 14, 2016, the Central Bank of Bahrain, on the same date, raised interest rates for the facilities provided by the CBB for retail banks by 0.25 per cent, as follows:
The interest rate for the overnight deposit facility was raised to 0.75 per cent and for the one week maturity to 1.0 per cent, and for the one month maturity to 1.25 per cent, Also There has been change in the overnight lending rate offered by the CBB for borrowing against government treasury bills, deposits of retail banks and the return against Islamic Ijara Sukuk was 2.75 per cent during the same period.
Wakalah
As part of the ongoing efforts towards the development of Islamic banking and promoting investment opportunities for Islamic retail banks, the Central Bank of Bahrain (CBB) launched a new Shariahcompliant Wakalah investment tool. This tool, approved by the Shariah Board of the CBB, is aimed at absorbing excess liquidity of the local Islamic retail banking through the Wakalah agreement. The agreement has been developed, based on a standard contract of the International Islamic Financial Market (IIFM), that is currently used by all Islamic banks in Bahrain.
The Wakalah is an investment opportunity for Islamic retail banks that wish to deposit excess liquidity with the CBB. Islamic retail banks need to sign a Wakalah agreement which appoints the CBB as an agent (Wakil) to invest cash on behalf of the bank (Muwakkil). Accordingly, the Wakil will invest these funds in the investment portfolio allocated in advance, and contains international Islamic Sukuks in the U.S. dollars and cash in Bahraini dinars. The duration of the Wakalah is one week and is available for retail Islamic banks every Tuesday.
NEW DIREcTIVES Outsourcing services that contain customer information
The CBB issued new directives in July 2016 for retail banks and financing companies that includes rules regarding outsourcing of services that contain customers’ information. Such directives prohibit retail banks and financing companies from outsourcing any services that include private customer information to non-licensee service providers, or to service providers operating outside Bahrain.
Starting from July 31, 2016 banks and financing companies must submit progress reports on a quarterly basis, to the concerned directorate in the CBB regarding the steps and actions taken to implement these directives.
ATM physical security for retail banks
As part of its objectives to protect depositors and customers of financial institutions, the CBB issued new directives in May 2016 to retail banks with regards to ATMs physical security measures that are in line with international best practices as part of the security measures for retail banks after the completion of the consultation in this regard.
The new rules require that banks ensure that all deployed ATMs are compliant with the Payment Card Industry Data Security Standards (PCI-DSS). The banks are therefore required to maintain up-to-date PCI-DSS certification.
The main purpose of the issuance of these directives is to oblige banks to apply additional protection measures to customer data when they use the ATM through providing additional protection for devices and software related to the ATM machine to prevent any security breaches of important client data (dataskimming) like the data stored in the magnetic-stripe such as the secret code for the ATM card.
Banking and financial services to customers with special needs
Issued in May 2016, this includes special measures and procedures to deal with such customers to safeguard their rights of accessing banking services on an equal basis with others, using appropriate methods of communication, and by creating the appropriate environment according to their needs.
The new directives include providing a number of services and privileges to persons with special needs, such as fast track and/or priority services to address their banking needs through a special priority desk clearly designated with a special logo and provide parking facilities and easy access entrances in addition to special door step financial services.
Furthermore, the guidelines include the use of forms and documents for transactions specially designed for people with special needs by using Braille, voice records, screen readers, or any other advanced and secured means. These directives also exempt such customers from the monthly fees and charges on the minimum balance for savings and current accounts, as well as withdrawals, done through bank counters.
All Bahraini retail banks that operate 10 or more branches in the Kingdom of Bahrain must provide at least one branch for serving such customers in addition to the normal branch activities. At least one ATM machine must be provided in the branch and equipped with the necessary technologies commensurate with wheelchair users and with Braille alphabet and voice software technology (talking ATM) for the visually impaired customers.
The CBB has communicated with Bahrain Association of Banks in order to coordinate with the banks to develop a specialised banking dictionary that includes banking vocabulary by way of sign language to facilitate the communication with people with hearing impairments. The CBB has also coordinated with the Bahrain Institute of Banking and Finance and the Ministry of Labour and Social Development to prepare specialised training courses for the staff of banks to be trained on how to deal with such customers.
The new directives include providing a number of services and privileges to persons with special needs, such as fast track and/or priority services to address their banking needs through a special priority desk clearly designated with a special logo and provide parking facilities and easy access entrances in addition to special door step financial services. [1373170]