Central Bank of Bahrain to invest in RTGS system

National payment network to boost banking sector

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By  Published  October 13, 2006

The Central Bank of Bahrain (CBB) has announced plans to implement a new national payment network as part of its efforts to boost the Kingdom's banking sector and meet international standards.

It will deploy a real-time gross settlement system (RTGS), which allows large-value inter-bank payment and settlement to take place online and in real time. The RTGS will also take care of retail fund transfers on behalf of bank customers. RTGS is a sophisticated payments mechanism in which inter-bank and other critical payments are directly entered into the system and settled item by item.

The CBB also announced that it would implement the Securities Settlement System (SSS) to enable real-time online settlement of all government securities transactions, including sale/purchase, auction and repurchase transactions. Both systems are expected to go live in the second half of 2007 and will replace Bahrain's existing deferred net settlement systems.

"The implementation of the RTGS and SSS systems will be a major milestone in Bahrain's continued advancement as an international financial centre of excellence," said Abdul Rahman Saif, executive director, Banking Operations, at the CBB, in a statement on the CBB's website.

"Effective payment and settlement systems, which conform to international standards, are essential to the functioning of a modern financial market such as Bahrain's."

Saif told ITP publication Arabian Computer News that in line with Bank of International Settlements (BIS) core principles of systemically important payment systems (SIPS), and with a view to reducing or eliminating systemic settlement risk, most developed countries and emerging economies have been trying to migrate from instrument-based to electronic message-based systems, debit-pull to credit-push systems, and net settlement to gross settlement systems.

"In addition to the new systems being safe, secure, sound and efficient systems, the immediate benefit to accrue to ordinary customers is much faster realisation of funds such as intra-day funds availability," he said.

The RTGS-SSS systems will be implemented through the country's existing Swift network for banking transfers, and will make use of the security features provided by its message transmission.

Dr Saif added: "The RTGS-SSS project is a combination of business development, treasury management and IT. The introduction of RTGS is likely to facilitate the offering of new banking products."

All full commercial banks (FCDs) currently involved in domestic interbank fund transfer will participate in the RTGS and SSS systems, while other banks will be able to use the systems as customers of FCDs. The systems are capable of handling multiple currencies.

Last year the Central Bank of Oman launched an RTGS payment system, to bring its system in line with international banking requirements.

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