Question

Financial institutions in Bahrain are highly regulated and monitored by the Central bank of Bahrain. In your own words, explain how the Central bank of Bahrain applies regulatory and monitoring authority in order to manage the financial institutions in the Kingdom. For your answer, refer to the current situation that is taking place (COVID-19); explain how does and will the Central bank of Bahrain help protect the economy of the Kingdom of Bahrain.

Answer 1

The central bank of Bahrain in the current situation of COVID-19 has announced the following measures to protect the economy of the Kingdom of Bahrain and to mitigate the effect of coronavirus on individuals and business, hence measures and announcement are listed below :

1. Cash Reserve Ratio(CRR) is the share of banks' total deposit that is mandated by the central bank of Bahrain to be kept with the latter in the form of cash. Decreasing the Cash Reserve Ratio for the retail bank from the existing 5% to 3%. CRR is the component of monetary policy, used by the central bank of Bahrain to control the money supply like inflation rate and liquidity in the country. this will have the ability of banks to issue more loans like car loans, personal loans, and other forms of credit to the borrower across the kingdom.

2. Relaxing (LTV) loan to value ratio for new residential mortgages for Bahrain citizens. Loan to value means the ratio of a loan to the value of an asset purchased. Relaxing LTV means more loan amounts than earlier to the purchaser of the assets.

3. Increasing 6-month deferrals of installments at no extra fees, interest, rates of any impacted borrower by the current situation of coronavirus, unless the borrower agrees to pay for a shorter period. It allows a borrower to postpone repayment of liabilities and help in planning his finances better.

4. Central Bank of Bahrain will provide retail banks a concessionary Repo arrangement up to 6 Month at 0% rate based on case by case.

5. Increasing the near field communication (NFC) contactless without using the PIN transaction limit to BD 50.

6. Central Bank of Bahrain has decided to cut key policy interest rate on one week deposit from 2.15 to 1.75 also decided to cut overnight deposit rate from 2 % to 1.50%.