The future of the Bahrain's financial sector lies in consolidation and mergers as there are too many banks in the Kingdom, of which many are too small to survive on their own, said Jamal Al Hazeem, the chief executive of BMI Bank, which has now completed five quarters of profitability.

"We have transformed ourselves from a bank involved in international syndications to one that concentrates on the local market and in that time we have probably increased our market share here from four per cent to about 7 per cent," he was quoted as saying in the Gulf Daily News, our sister publication.

"But the situation remains that the local market is saturated and we need consolidation so that there are fewer players but larger financial institutions so that they can compete both locally and regionally," said Al Hazeem.

BMI Bank in Bahrain has opened four new branches with plans to open a further two in Tubli and Salmabad before the end of the year. But even this expansion is not good enough for the bank's chief executive.

"There are too many banks in Bahrain and many are too small so the future lies in consolidation and mergers," remarked Al Hazeem, who joined BMI Bank in 2010.

"Greater size would reduce the possibility of something going wrong at a bank because it is too small. Even some of the bigger banks in Bahrain would be regarded as small elsewhere in the region," he said.

'The boards of financial institutions and shareholders should look to be the drivers behind consolidation for the good of the industry," Al Hazeem said.

"They should be looking at what is good for the institution rather than what they see as important to the individual stakeholders," he added.

He said Bahrain could perhaps learn lessons from the way Malaysia consolidated its financial sector. "What happened there was that their central bank established a three-tier banking structure," he stated.

"There if you had capital above a certain level, you were in the top tier and you could provide a complete service. If you were on a lower tier, there were restrictions and if you were in the third tier, there were more restrictions," said Al Hazeem.

"That encouraged institutions to either raise more capital or merge and for Malaysia it worked," he added.

According to him, Bahrain has one of the most interactive central banks where "it is easy to discuss things with them and they are always prepared to listen."

"There are other areas in the Gulf where central banks just tell people what to do," he pointed out.

Al Hazeem called upon the financial industry to work with the central bank to bring about the level of consolidation needed to ensure the future of the sector and its ability to compete and offer the range of products and services that are needed.-TradeArabia News Service