Jean-Christophe Durand, CEO of the National Bank of Bahrain (NBB), discusses the impact of Covid-19, fintech and the prospects for further banking consolidation.
Global Finance: How has Bahrain navigated the Covid-19 crisis, and how has the financial sector been impacted?
Jean-Christophe Durand: The reaction from the government was immediate. The amounts put on the table to ensure the economy and the population didn’t suffer too much were substantial. When it comes to the financial sector, we contributed to support this effort. We were involved in a number of measures: a first six-month period of loan deferral that was then extended, for another three and then six months, to give the commercial and retail sectors time to reorganize themselves.
That obviously came at a cost for the banks, as the first extension was without interest and there were also measures to reduce the fees and extend long-term maturities. If you look at the impact in terms of revenues, most lenders have published results below that of the previous year, as everywhere else in the world. Banks were cautious and made substantial prudential provisions so that no big surprises would arise in 2021. Bahrain’s economic growth should rebound this year; and hopefully, banks will benefit from this improved environment.
GF: Were major infrastructure projects put on hold? What is the outlook now?
Durand: Not really. The expansion of Bahrain International Airport, for instance, which was a major project pre-Covid-19, has been completed almost on time, and that’s a major achievement for the kingdom. There are other projects in the pipeline, like the second causeway to Saudi Arabia and the Bahrain Metro [light-rail network], for which the government is seeking expression of interest. Overall, I would say that what was supposed to be delivered is more or less on track.
GF: Bahrain recently normalized relations with Israel. What changes and opportunities will this bring to the financial sector?
Durand: It’s a bit early to say. There have been contacts between various economic actors, but we are still in the early stages and the pandemic doesn’t help. What I can say is that obviously Israel has strong expertise in technology, and in particular in fintech, and that is an area where there could be interesting cooperation for the financial sector in the future.
GF: Bahrain wants to be a leader in financial technology and innovation. What makes it stand out compared to its regional peers?
Durand: It’s a small country where all stakeholders are part of a team that is focused on developing the digital economy. Everywhere you go, people work hand in hand toward that goal. And it’s not only the private sector; innovation is also very much driven by public institutions. So, it’s really that “#TeamBahrain” effort that makes Bahrain stand out.
GF: NBB acquired Bahrain Islamic Bank last year. Why?
Durand: Because we felt we needed an Islamic banking capacity. The good thing is that there is no overlap between the two entities: There is the Islamic portfolio, the conventional portfolio and the ability to cross-sell between them and create synergies. For us, retail is very important; and that was part of the reason for this acquisition. With Bahrain Islamic Bank, we increased our market share in retail banking from about 17% to 26%.
GF: Bahrain has one of the highest concentrations of financial institutions in the world. Is there space for consolidation?
Durand: I am a firm believer that consolidation is required; it is to the benefit of everybody, including clients. Especially after this crisis, many banks will be thinking that if the Covid situation continues, and if there are future shocks to the economy, well, being a larger entity with strong capitalization has its merit. The banking industry is moving so fast, the cost of regulatory compliance is becoming significant and so is the cost of acquiring the required technology. There are a lot of banks in Bahrain, including many small banks that at some stage would benefit from the backing of larger institutions.
GF: Would NBB consider another acquisition?
Durand: We are still in the integration phase with Bahrain Islamic Bank. We already have shared services and businesses at the group level, but we are still busy applying best practices and a common vision. In the future however, potentially. Especially if there is a trend of consolidation in Bahrain.