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  • CM-5.5 CM-5.5 Limits for large exposures

    • Aggregate limit on large exposures — 800%

      • CM-5.5.1

        The aggregate of large exposures may not exceed 800% of the bank's (consolidated) capital base.

      • CM-5.5.2

        "Capital base" is the adjusted capital base for the purpose of the risk asset ratio calculated in accordance with the PIR/PIRC return (see Module CA).

      • CM-5.5.3

        A "large exposure" is any exposure to counterparty or a group of closely related counterparties which is greater than, or equal to, 10% of (consolidated) capital base.

    • Single exposure limit — 15%

      • CM-5.5.4

        A bank may not incur an exposure to an individual counterparty or group of closely related counterparties which exceeds 15% of the reporting bank's (consolidated) capital base.

      • CM-5.5.5

        "Closely related counterparties" are two or more counterparties who constitute a single risk because one of them has, directly or indirectly, a controlling interest in the other(s) (i.e. 20% or more equity voting rights), or counterparties connected in such a way that the financial soundness of any one of them may affect the financial soundness of the other(s), or the same factors may affect the financial soundness of both or all of them.

      • CM-5.5.6

        "Controlling interest" means either significant ownership or any other interests (including, but not limited to, the ability to exercise or control the exercising of voting power of issued share capital in the licensee) which enable the holder, or which would enable a proposed transferee, thereof to exercise significant influence over the management and business of the licensee.

    • Limit on exposures to connected counterparties — 40% aggregate

      • CM-5.5.7

        Exposures to connected counterparties may be justified only when undertaken for the clear commercial advantage of the bank, when negotiated and agreed on an arm's length basis, and when included in the large exposures policy statement agreed with the Agency.

      • CM-5.5.8

        No lending by a bank to its own external auditors shall be permitted. In this context, "external auditors" refers to the firm/partnership, the partners, the Directors and managers. For those conventional banks which provide Islamic banking services, no lending to members of the Shari'a board shall be permitted.

      • CM-5.5.9

        For the purpose of this module, "Connected counterparties" includes companies or persons connected with the bank, including in particular subsidiaries and associated companies (whether such association is due to control or shareholding or otherwise), Directors and their associates (whether such association is due to control or family links or otherwise), management, and shareholders holding 10% or more of the voting power of the bank. In this context, family links means spouse, father, mother, sons, daughters, sisters and brothers.

      • CM-5.5.10

        Exposures to all connected counterparties listed below when taken together, may not exceed 40% of (consolidated) capital base.

        Connected Counterparties Individual Limit Aggregate Limit
        Shareholders with "significant ownership (i.e. 10% and above)" 0% 0%
        Directors 10% 20%
        Associated Companies / Unconsolidated subsidiaries 15% 20%
        Total (including management) 40%

      • CM-5.5.11

        Lending to senior management is covered under chapter CM-6. All credit facilities to senior management will be included under the total connected counterparties limit of 40% of capital base.

    • Limit on exposures to shareholders

      • CM-5.5.12

        Shareholders with significant ownership of the bank's capital (10% and above) are not allowed to borrow from the bank (i.e. a 0% limit), however smaller shareholders will be subject to the normal 15% limit on an individual basis. Directors who are also shareholders with significant ownership are subject to the 0% limit mentioned above.

    • Deductions from capital base

      • CM-5.5.13

        The Agency will examine particularly closely all exposures to companies or persons connected to a bank and will deduct them from the bank's (consolidated) capital base if they are, in the Agency's opinion, of the nature of a capital investment, or provision of long-term working capital, or are made on particularly concessionary terms.

      • CM-5.5.14

        Any other form of connected lending outside the scope of the above will be dealt with by the Agency on a case-by-case basis.