Manama is pivotal base for banking

Although this has been a difficult year for Bahrain, its banking industry has gone to great lengths to maintain reliable and competitive service. As PAUL MELLY reports, the country has commerce weaved into its culture.

Lacking the oil and gas wealth of its neighbours, save in modest quantities, Bahrain has had to build its modern prosperity through industry and, above all, a role as a services and financial hub.

Other cities now challenge Manama as a regional banking centre, but the Bahraini capital retains its longstanding position as a hive of technical expertise and innovation. A major centre of Islamic financial services, the city is also a regional base for many international firms that trade with Saudi Arabia and the other larger economies of the Gulf Cooperation Council (GCC).

For banks providing cash management services this represents an opportunity and a challenge. There is a need for their services. However, the clientele is demanding and ready to be flexible in its can-do approach to business.

In such a climate, it is hardly surprising that a number of the world’s major banking groups have chosen Bahrain as a major centre of operation for the Middle East.

For example, BNP Paribas is present in four GCC markets, and it has substantial Saudi and Kuwaiti offshoots servicing both corporate and individual clients. But it is in Bahrain that the bank has established its regional hub.

Besides its commercial branches on the island, BNP Paribas has an Offshore Banking Unit, which provides treasury, structured finance, corporate and investment banking services to customers across the Gulf area. The bank also maintains a representative office tasked with covering the regional financial institutions and mobilising group specialist expertise in asset management, structured investment products and Islamic banking.

Bahrain is a natural home for such activities, because of the nature of the businesses that are active there.

“Key global and large corporate names have established their regional headquarters in Bahrain and these clients have high expectations and demand the very best industry solutions to support and compliment their expansion across MENA and into other regions,” says one banker.

But he points out that that the potential customer base extends well beyond the big multinationals. There are many local names, large and small, with specific service needs.

“Different customer segments have different needs. Multinational companies in Bahrain at most times look for centralised cash management solutions involving multiple countries and geographies, to help treasurers and chief financial officers manage their regional or global operations,” he explains.

“Large corporates may have more focused cash management requirements and are open to implement automated solutions to address their complex needs, whereas SMEs are looking to introduce simple solutions into their businesses for efficiencies and cost savings.”

Moreover, it is not only the customer base that is diverse. Big international banks find themselves competing against local institutions, which are also seeking to steadily strengthen their services. For example, in 2009 Bank of Bahrain and Kuwait (BBK) selected a leading specialist software house to upgrade its online cash management services for corporate clients, tracking payments and account balances, making funds transfers and opening letters of credit.

Meanwhile, Ahli United Bank (AUB) operates a broad range of services for large companies, including cash collections and salary transfers, and a range of corporate finance products. But it also has a department devoted solely to catering for small-and-medium-sized business clients.

Faced with a lively challenge from local players, the major multinational banks seek to make the most of their global reach and specialist strengths.

“The banking industry in Bahrain is vibrant and competition is healthy with many local, regional and international banks going after a share of limited number of key corporate businesses. So banks are offering competitive services, products and pricing to customers; and, of course, they are the ultimate beneficiary of this healthy rivalry,” says Hassan Hassan, manager, global payments and cash management.

HSBC provides local expertise with a global reach, so we are focused on key segments and partnering with corporates who have an appetite to grow locally, regionally and globally. We choose to be distinctive in our cash management offerings, with a full team of sales, products and client management staff. They provide end-to-end cash management expertise and ongoing service and support – through dedicated client service managers for our top-tier relationships and the “HSBCnet Bahrain Helpdesk” service for our wider corporate customer base.

Hassan goes on to explain how it is necessary to overcome the caution that some potential customers feel about using automated on-line services for operations that relate to the handling of the cashflows that are at the heart of their businesses.

“We have a mixed corporate base like most countries in the region, with very sophisticated clients on one hand and developing entities on the other,” he says.

“HSBC understands the concerns that some corporate clients have with on-line banking solutions and security concerns regarding on-line payment authorisation. So we have introduced a semi-automated payment authorisation solution.

“This is, we believe, the first service in the Bahrain market that allows clients to issue payment instructions on-line, but captures the signatures of payment authorisers on the instruction sheets. HSBC verifies all signature authorisations when it receives the paper forms and then releases the payment instructions which have been uploaded into its automated system,” says Hassan.

“Looking ahead, HSBC’s client managers will soon be using a system where all relevant staff, and the customer, have access to all necessary information through a single platform.”

For customers who prefer to continue using branches, HSBC offers over-the-counter collection/withdrawal services for cheques and cash. These are mostly used by clients with only small volumes of business, although, of course, the bank also operates sophisticated collection services, providing data capture, detailed reporting and the reconciliation of receivables.

Many larger or more international clients turn to the bank’s “Global Billing System” (GBS), which facilitates the collection of fees related to day-to-day account transactions and payments and cash management.

They may also be attracted by liquidity management tools, such as cross-border cash sweeping. This can allow companies to temporarily park their funds abroad or make ad-hoc physical funding transfers, through on-line payment services for registered users.

Hussain Shirazie,  head of transaction banking at Standard Chartered in Bahrain, says the market is slowly evolving towards sophistication. “Although there is interest in automation and creating efficiency in back office processing and payments, implementation depends on support from senior management and company owners.”

The capacity to monitor account activity online is recognised as a necessity for managing day-to-day business operations. But local clients still tend to opt for simple solutions, unless cost savings are on offer.

At the more sophisticated end of the market banks are differentiated by their ability to automate the handling of receivables and reconciliations. Standard Chartered sees itself as one of the few banks in Bahrain able to offer a full suite of cash management products to both corporate banking and SME customers.

“We offer a number of cash management products, aligned with the structure of clients’ accounts, payments and receivables,” says Shirazie. An internet-based service “allows users to manage payments, receivables and account information electronically, thus enhancing visibility of funds and creating efficiency in the payments/collections process”.