Bahrain is an island state. It lies 300 miles of Dubai, Abu Dhabi, Kuwait, Qatar and Saudi Arabia. Bahrain’s economy is heavily oil based and has been developing since the mid-1960s. Bahrain also has become a service center for its surrounding countries. There is a free trade zone in Mina Sulman which is the main port.

Bahrain banking system started developing in 1920s, however remained fairly small until 1970s. After the dramatic upswing in crude oil prices, Persian Gulf countries transformed into large receivers of funds that created an extremely favorable conditions for offshore banking Bahrain. Local banks realized that they could play a role in reinvesting these funds into the regional economies; however they were too small to deal with such a large function. This led Bahrain Monetary Agency (central bank in Bahrain) to allow establishment of Offshore Banking Units (OBUs).

The offshore banking Bahrain units can be created and can function on the basis of a license for an annual fee. In return the offshore banking units are exempted from the payment of taxes. Under the licensing system the offshore banking unit must be a full branch of its parent banking. The staff of the offshore banking unit must be fully staffed and actively engaged in the banking business. The categories of the banking activities must be indicated in the books of the branch. In the case of existing fully licensed bank who apply for an offshore banking unit license for its non-resident business, arrangements must be made for separate records as approved by the Bahrain Monetary Agency. The Bahrain Monetary Agency is the Central Bank.

The offshore banking units cannot deal with the residents of Bahrain. The offshore banking units can carry out onshore activities in a controlled manner. The units can deal with the government, its agencies, licensed banks and any development projects approved by the Bahrain Monetary Agency.

It has to be mentioned that Bahrain’s convenient time zone location played as an advantageous factor, following on from Singapore in the morning and affecting the London markets opening bids and carrying the structure market’s opening of world interest rates through the West’s reopened.

Offshore banking units were intended to operate in Bahrain and serve as a tool for reinvesting excess funds into the region. The first OBU in Bahrain was established by Citibank and Algemene Bank. Number of OBUs reached 76 in 1984, but later decreased to 48 in 2002 primarily due to global developments, such as mergers and acquisitions. In 1977 Agency introduced new type of license for Investment Banking (IB) for the offshore banking institutions carrying out investment banking services.

During last few years Bahrain made serious steps towards modernizing its economy and political system and had certain success in promoting itself as a leading offshore banking center in the region especially in the field of Islamic banking. The offshore financial sector owned $70 billion in 2004 and daily foreign exchange turnover totaled to $4 billion.

Offshore Banking Licenses

Bahrain Monetary Agency provides these types of licenses:

1. Full Commercial Bank License (FCB);

2. Offshore Banking Unit (OBU);

3. Investment Banking License (IBL);

FCB is allowed to conduct all kinds of banking transactions with resident and non-residents in any currency. OBU may conduct transactions only in foreign currency and only with non-residents. IBs are permitted to conduct investment and banking activities with Bahrain non-residents.
Banks are allowed to act under these licenses either traditional banking practices, or Islamic banking practices.

Bahrain Monetary Agency (BMA) is central bank of Bahrain and at the same time regulator of offshore banking sector. According to the Decree No. 21/2002 BMA was given authority to regulate securities industry. BMA also undertook capital market supervision and became unified regulator of the financial sector.

Here is a list of offshore banking institutions operating in Bahrain:

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