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Compliance Risks in Banking in Bahrain Pose Significant Threats to Financial Stability

A recent study has highlighted the alarming compliance risks facing banks operating in Bahrain, with findings suggesting that these institutions are struggling to manage risk effectively. The research, conducted by academics Hameeda Abu Hussain and Jasim Al-Ajmi, surveyed bankers across the country and found that credit, liquidity, and operational risks are the most significant threats to financial stability.

Understanding Risk Management

The study, published in the Journal of Risk Finance, reveals that banks in Bahrain have a clear understanding of risk management, but their practices vary significantly depending on whether they are conventional or Islamic institutions. While conventional banks reported higher levels of risk awareness, Islamic banks were found to be more vulnerable to certain types of risk, such as country, liquidity, and operational risks.

Factors Influencing Risk

The research also found that the level of risk faced by banks in Bahrain is influenced by several factors, including:

• The extent to which managers understand risk and risk management practices
• Bankers who have a good understanding of risk and risk management are more likely to adopt effective risk management strategies

Limitations and Implications

Despite the high response rate from participating bankers, the researchers acknowledge that their findings may be influenced by the current global economic crisis. They also note that the reliance on survey methodology may have introduced bias into the results.

The implications of these findings are significant, with the study suggesting that:

• Regulators, investors, and depositors need to be aware of the compliance risks facing banks in Bahrain
• The research provides valuable insights for policymakers seeking to promote financial stability in the country
• Effective risk management practices are crucial in the banking sector

Overall, this study highlights the importance of effective risk management practices in the banking sector, particularly in the context of Islamic banking institutions. By understanding the compliance risks facing banks in Bahrain, regulators and policymakers can take steps to promote financial stability and protect the interests of investors and depositors.