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Bahrain has created a new private banking licence to give a nudge to its wealth management industry. It’s liable to increase competition for staff.

“The licence is aimed at encouraging international and leading regional banks to offer sophisticated wealth management services,” said Ahmed Abdul Aziz Al Bassam, the Central Bank of Bahrain’s director of licensing and policy.

But does the Middle East really need another incentive to encourage wealth managers? An October report by The Boston Consulting Group (BCG) suggests that economic liberalisation has spurred competition in wealth markets. Nearly all international players as well as domestic banks have a presence.

It’s no wonder. UAE tops the tables in terms of millionaires as a percentage of population, with 6.1%. Qatar, Kuwait, Bahrain and Saudi Arabia also feature in the top 15 countries. And the number of HNWIs in the region grew by 11.9%, globally one of the steepest increases, according to the Merrill Lynch Cap Gemini World Wealth Report 2007.

The good news for private bankers is that a shortage of staff has tightened the market for talent. Job hopping in the region has seen wealth managers struggle to maintain service levels and client continuity. The upside is that relationship manager salaries doubled last year in a bid to keep hold of quality staff, according to the BCG report.

Is the Middle East’s private banking boom sustainable in the long term? Bahrain’s licence may bring some much needed regulatory oversight to an industry that has seen runaway growth and is likely to face pressures in future. The BCG report talks of margins being squeezed, eroding prices, commoditisation and market saturation, as international and regional players vie with growing competition from Islamic banks.

Michael Ketley, managing director of recruitment firm MRK, which has had a Bahrain presence since the 1990s, says the region offers an exciting opportunity for private bankers: “The amount of business in the region is gigantic, and the volumes you have to work with make it an exciting environment to work in.”

Ketley also says that it has the edge in terms of bonuses. The bottom end, he says, is 20%, but it’s not unheard of for some top players to haul in 80%.

However, the BCG report claims that it’s becoming increasingly difficult for wealth managers to attract the money, as many affluent GCC clients instead prefer to pour their money into the booming real estate opportunities.