Manama - Islamic banks in Bahrain have until June-end next year to fully comply with new standards mandated by Central Bank of Bahrain (CBB), a top official has warned.

CBB executive director for banking supervision Khalid Hamad told delegates at the 12th Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) - World Bank Annual Conference that the new Islamic banking legislation, under which independent external scrutiny is a mandatory requirement, will promote corporate governance and compliance with Basel III norms.

Mr Hamad said the CBB is also preparing comprehensive and detailed risk management legislation and will develop appropriate remedies for the management and use of investor accounts, principles of dividend distribution and the formation of appropriate reserves.

Reviewing performance of the Islamic finance industry, the official said growth had slowed down significantly over the last two years, mainly on account of a slowdown in economic growth due to lower oil prices and increased regulatory pressures.

“Now is the time to consolidate and address deficiencies in order to prepare the industry to resume future growth,” he added.

Talking about key issues that needed attention from Islamic banks, Mr Hamad said top of the list was reducing use of commodity Murabaha and looking at alternatives in personal finance, financing education and health care.

“Sovereign and semi-sovereign institutions and Islamic banks should issue more sukuks to address the shortage of liquidity instruments.

“There is also a need for more use of participation contracts, with the development of appropriate risk management tools,” he added.

According to him, Islamic investment banking needs to develop a sustainable business model as well as more mergers for a clear competitive advantage.

To enhance governance and performance, Islamic banks are required to obtain a credit rating.

The industry also needs to work on building the capacity of board members, senior management and officials, particularly those in risk management, through qualifications and training.

“Industry players must also co-operate fully with the AAOIFI, the International Islamic Financial Market and the Islamic Financial Services Council by adopting their standards, membership and participation in the development of future standards for stability and resilience.”

He said efforts are needed to enhance the culture of compliance within Islamic banks and promote ethical behaviour at all levels.

“The business environment and corporate culture in banks also need to change. The board of directors is responsible for creating a culture of ethical conduct and compliance, and present itself as a role model.”

Being held at the Diplomat Radisson Blu Hotel and Spa, the two-day conference has drawn high-profile attendance from across the globe including 30 experts hailing from 15 countries.

It will conclude today.

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