APPENDIX I Structure of the Bahraini Financial System
69. Despite the small size of Bahrain’s economy, the financial sector is well diversified and well developed. Bahrain plays host to over 360 financial institutions, including the key players, such as commercial and Islamic banks, off-shore banking units, and insurance companies, as well as a large group of pension funds, financial advisory groups, and money brokers. There are currently 28 Islamic financial institutions licensed and active in Bahrain, including 6 full commercial banks, 15 investment banks, and 3 off-shore banking units. The financial sector is open to foreign investors and there are no restrictions regarding foreign ownership of financial institutions. Most of the financial institutions are privately owned. Cross-sectoral activities remain limited, with no financial conglomerates operating in Bahrain.
APPENDIX II Stress Testing Procedures, Assumptions and Outcomes
82. This appendix describes the methodology and results of the stress tests that were carried out as part of the Bahrain FSAP. The assessment is based on an estimation of the vulnerability of individual banks as well as the system as a whole to various exceptional but plausible shocks. However, stress testing is necessarily a partial equilibrium exercise, which ignores such phenomena as institutions’ reactions to shocks, and which cannot be applied to hypothetical situations very different from the actual one.
83. The stress tests were conducted in collaboration with the BMA. The BMA provided coded individual bank data and suggested calibrations for shocks and scenarios.