Maintaining minimum RAR
CA-2.5.4
To clarify the effect of these minimum ratios (as identified in Paragraphs CA-2.5.1 to CA-2.5.3) on differing banking groups and individual banks, four examples (see Appendix CA-1) are given. In the examples, the parent and the subsidiary are Bahrain incorporated banks, but the cases could apply to overseas incorporated subsidiaries (with adjustment to the minimum RAR where appropriate in individual cases).
(a) Case One: Compliant solo bank - No subsidiaries (PIR only).(b) Case Two: Compliant parent bank, compliant group (PIR and PIRC).(c) Case Three: Compliant parent bank, compliant subsidiary bank, but non - compliant group.(d) Case Four: Non - compliant parent bank, compliant subsidiary bank and compliant group.For detailed workings of the above cases, refer to Appendix CA-1.
October 07CA-2.5.5
All locally incorporated banks must give the Central Bank, immediate written notification of any actual breach by such banks of either or both of the above RARs. Where such notification is given, the bank must also:
(a) Provide the Central Bank no later than one calendar week after the notification, with a written action plan setting out how the bank proposes to restore the relevant RAR(s) to the required minimum level(s) set out above and, further, describing how the bank will ensure that a breach of such RAR(s) will not occur again in the future; and(b) Report on a weekly basis thereafter on the bank's relevant RAR(s) until such RAR(s) have reached the required target level(s) set out below.October 07CA-2.5.6
In addition, the Central Bank considers it a matter of basic prudential practice that, in order to ensure that these RARs are constantly met, banks set up internal 'targets' of 12.5% (on a consolidated basis) and 8.5% (on a solo basis) to warn them of a potential fall by the bank below the Central Bank's required minimum RARs as set out above.
October 07CA-2.5.7
Where a bank's capital ratio falls below its target ratio, the General Manager should notify the Director of Banking Supervision at the Central Bank immediately. No formal action plan will be necessary, however the General Manager should explain what measures are being implemented to ensure that the bank will remain above its minimum RAR(s).
October 07CA-2.5.8
The bank will be required to submit form PIR (and PIRC where applicable) to the Central Bank on a monthly basis, until the RAR(s) exceeds its target ratio(s).
October 07CA-2.5.9
The Central Bank will notify banks in writing of any action required of them with regard to the corrective and preventive action (as appropriate) proposed by the bank pursuant to the above, as well as of any other requirement of the Central Bank in any particular case.
October 07CA-2.5.10
Banks should note that the Central Bank considers the breach of RARs to be a very serious matter. Consequently, the Central Bank may (at its discretion) subject a bank which breaches its RAR(s) to a formal licensing reappraisal. Such reappraisal may be effected either through the Central Bank's own inspection function or through the use of Reporting Accountants, as appropriate. Following such appraisal, the Central Bank will notify the bank concerned in writing of its conclusions with regard to the continued licensing of the bank.
October 07CA-2.5.11
The Central Bank recommends that the bank's compliance officer supports and cooperates with the Central Bank in the monitoring and reporting of the capital ratios and other regulatory reporting matters. Compliance officers should ensure that their banks have adequate internal systems and controls to comply with these regulations.
October 07
