From Law to Practice: Bahrain’s New Secured Transaction Law

NBB takes a closer look at Bahrain’s new Secured Transactions Law that is set to reshape secured lending, requiring banks and in-house counsel to ensure readiness. 

Bahrain’s introduction of the Secured Transactions Law No. 3 of 2026 (the “Law”) marks a significant milestone in the Kingdom’s ongoing efforts to modernise its legal and financial infrastructure. The Law is designed to enhance the enforceability of security, promote financial inclusion, and align Bahrain with international best practices.

At its core, the Law establishes a clear and efficient system governing the creation, perfection, and enforcement of security interests over movable assets. By introducing a centralised collateral registry that is expected to strengthen creditors’ rights in cases of payment default, the Law is anticipated to have a significant impact on the financial sector ahead of its expected implementation in February 2027.

Banks and their in-house legal counsel play a central role in ensuring the successful implementation of the Law. This article highlights the key features of the Law, its impact on the financial industry, and the steps that may be taken by financial institutions and in-house counsel to ensure practical readiness ahead of the implementation of such Law.

KEY FEATURES OF THE SECURED TRANSACTIONS LAW

The Law introduces several fundamental changes to the legal framework governing secured financing. These changes are expected to be further detailed in the relevant implementing regulations to be issued by the end of 2026.

1. Broader scope of collateral

One of the most notable features is the broader scope of collateral, which allows banks and lenders to take security over a wide range of movable assets, including inventory, receivables, equipment, bank accounts, and future assets. This expansion not only enhances the flexibility of secured lending but also benefits borrowers by increasing the pool of eligible collateral. It is particularly advantageous for SMEs and start-ups that may lack immovable property but possess valuable movable assets.

2. Central collateral registry

The Law provides for the establishment of a centralised electronic collateral registry for security interests in movable property. Security interests are perfected through registration, thereby enhancing transparency and enabling lenders to verify existing security interests efficiently. This is complemented by the introduction of clear priority rules, with the registry expected to operate on a “first-to-register” or “first-to-perfect” basis. Such a regime reduces uncertainty in competing claims over the same collateral and promotes greater legal certainty. For security documents entered into prior to the effective date of the Law, the order of priority will instead be determined based on the date of execution of the relevant security document, rather than the date of registration. While the registration of such pre-existing security documents will remain optional, it is generally advisable to register them in order to mitigate potential disputes regarding priority and enhance transparency.

3. Shift in collateral valuation practices

The ability to secure funding with movable assets will require more robust valuation methodologies, particularly for assets like receivables and inventory that are dynamic in nature.

PRACTICAL STEPS FOR BANKS AND IN-HOUSE LEGAL COUNSEL

As we navigate the implementation of the Law, our colleague Elias Hasan Murad, group head – credit administration & debt recovery at the National Bank of Bahrain, brings valuable perspective on the impact of such Law from a credit administration and debt recovery perspective, “The introduction of a central collateral registry represents a transformative step in enhancing transparency, enforceability, and priority of security interests. It ultimately delivers clearer legal remedies, smoother resolution processes, and improved recovery outcomes, supporting a healthier credit environment.”

To ensure compliance and maximise the benefits of the Law, banks and their in-house legal counsel should take proactive measures across several areas:

1. Updating internal policies and procedures

Review and revise credit and risk policies and/or procedures to reflect new categories of accepted collateral, the procedure for registration in the electronic registry, revised enforcement procedures, and the procedure to discharge security interests once the facility amount has been settled.

2. Revising documentation

Facility agreements, security agreements, and related documentation must be updated to reflect the new legal terminology and concepts introduced under the Law and include provisions which address the registration, priority, and enforcement of security interests. Covenants should also be included to obligate the borrower and/or security provider to cooperate in the creation, perfection, and maintenance of the security interest. This includes, among other things:

• executing all necessary documents;
• providing adequate descriptions of the collateral;
• refraining from creating competing security interests without prior consent;
• promptly notifying the lender of any event that may affect the value or enforceability of the secured assets; and
• expressly and irrevocably appoint the relevant bank as its attorney to execute, deliver, and perfect all documents, and to take any actions the bank may consider necessary in connection with the security.

3. Implementation of the registry processes

Banks must develop practical workflows to ensure the perfection of security interests, including filing initial registrations with the collateral registry, amending filings if required, and ensuring effective discharge of security interests following repayment.

Dedicated personnel may be appointed to oversee such workflows.

4. Training and awareness

Internal awareness is critical. Banks should organise structured training sessions for legal teams, credit officers, risk officers, relationship managers, and possibly operations teams to introduce such legal concepts, practical considerations, and address any queries or concerns that may arise.

PRACTICAL CONSIDERATIONS

While the Law offers significant advantages, certain challenges may arise in practice:

1. Description of collateral

One of the more nuanced challenges is the requirement to adequately describe collateral in the registry. While the system is expected to allow for general descriptions, certain movable assets can be difficult to identify precisely.

In such cases, determining an appropriate reference or description that satisfies legal requirements while remaining practical can be complex.

2. Registry accuracy and reliance

The effectiveness of the system depends on accurate and timely filings. Errors or omissions in registration could affect priority rights or enforceability.

3. Market familiarity

As the Law is relatively new, the market may require some time to see the full implications of the Law and to reflect the necessary changes in its documentation and practices, which should be supplemented by ongoing education and communication.

CONCLUSION

The Secured Transactions Law represents a major advancement in Bahrain’s legal and financial framework, bringing greater clarity, efficiency, and flexibility to secured lending.

By updating procedures, revising documentation and strengthening internal awareness, financial institutions can position themselves to fully benefit from the new regime while maintaining compliance and risk management standards.

With proper preparation, the Law is poised to enhance Bahrain’s position as a modern, competitive financial centre.

Text by:

1. GABY SAMIR EL HAKIM, group chief legal officer & corporate secretary, National Bank of Bahrain B.S.C.
2. DALAL AL KOOHEJI, senior legal counsel, National Bank of Bahrain B.S.C.
3. MAHA ALKHABBAZ, legal counsel, National Bank of Bahrain B.S.C.