CM-A.1.1

The purpose of this Module is to provide a checklist of the key elements of a sound credit risk management system which supervisors can expect their banks to observe. This requirement is supported by Article 44(c) of the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006).

CM-A.1.2

This Module provides support for certain other parts of the Rulebook, mainly:

Legal Basis

CM-A.2.1

Overseas conventional bank licensees are expected to maintain provisions against potential loan losses on their books in Bahrain. Head offices of banks that do not wish to maintain provisions on books of their branch(es) in Bahrain must advise the CBB, on an annual basis and in writing, of the amount of provisions set aside for the bad debts of Bahrain branch(es) (see Section CM-4.3).

CM-A.2.2

The CBB requires all Bahraini conventional bank licensees to set out their policy on large exposures, including limits for differing types of exposures to individual customers, banks, corporates, countries and economic and market sectors, in a policy statement which must be formally approved by the Board of Directors (see Section CM-5.8).

CM-A.2.2A

The CBB requires that any large exposure, as defined in Paragraph CM-5.5.1, must be priorly approved by the bank's Board of Directors (see Paragraph CM-5.5.3A).

CM-A.2.3

The aggregate of large exposures may not exceed 800% of the bank's consolidated Total Capital (see Paragraph CM-5.5.3). 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 Total Capital (see Paragraph CM-5.5.4).

CM-A.2.4

Exposures to all connected counterparties when taken together, may not exceed 25% of consolidated Total Capital. Controllers and subsidiaries of controllers are not allowed to borrow from the bank (i.e. a 0% limit), however smaller shareholders will be subject to a 15% limit on an individual basis (see Paragraph CM-5.5.4). Directors who are also controllers with significant ownership are subject to the 0% limit (see Paragraphs CM-5.5.11 and CM-5.5.12).

CM-A.2.5

All Bahraini conventional bank licensees are required to report (for the attention of the Director of Banking Supervision Directorate) all large exposures, (whether exempt or not) on a quarterly basis using the Form PIR provided in Appendix BR-5 (see Section CM-5.7).

CM-A.2.6

The CBB's prior written consent must be obtained for any loan to an employee where the amount of such loan, either singly or when added to an existing loan(s) outstanding to that employee at that date, would be equal to or in excess of BD 100,000 (or its equivalent) (see Section CM-6.1).

CM-A.2.7

The CBB requires that banks only provide a new consumer facility (or renew, extend or otherwise modify an existing consumer facility) for an amount such that the borrower's total monthly repayments on all his consumer finance commitments do not exceed 50% of his monthly gross income (see Section CM-8.4).

CM-A.2.8

[This Paragraph was deleted in April 2014 as this requirement has been moved to Module BC].

CM-A.2.9

The CBB's prior written consent must be obtained before writing off any loan to a senior employee/officer/Director of the reporting bank or other bank(s) who fails to discharge his/her repayment obligations to the reporting bank (see Section CM-7.1 for details).

CM-A.2.10

All Bahraini conventional bank licensees must notify the CBB of any write-off of a credit facility, (i.e., loan, overdraft and any other credit facility) of an amount in excess of BD 100,000 (or its equivalent). Chapter CM-7 contains Rules relating to the write-off of credit facilities.

CM-A.2.11

All banks which provide credit to resident natural persons in Bahrain must become members of the Credit Reference Bureau and follow the CRB Code of Practice (see Paragraph CM-1.2.4).

CM-A.2.12

All banks are required to follow the CBB's requirements concerning refund of insurance on loan prepayments and top-ups and early repayment fees/charges as outlined in Section CM-8.6.

CM-A.2.13

CM-A.3.1

This Module was first issued in July 2004 as part of the conventional principles volume. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG 3 provides further details on Rulebook maintenance and version control.

CM-A.3.2

The most recent changes made to this Module are detailed in the table below:

Summary of Changes

[deleted]

Effective Date

Basel Committee: Principles for the Management of Credit Risk

Counterparty Risk Management Policy Group (CRMPG): Improving Counterparty Risk Management

Basel Committee: Framework for Internal Control Systems in Banking Organisations

CM-1.1.1

Credit risk is the likelihood that a counterparty of the bank will not meet its obligations in accordance with the agreed terms. The magnitude of the credit risk depends on the likelihood of default by the counterparty, and on the potential value of the bank's contracts with the customer at the time of default. Credit risk largely arises in assets shown on the balance sheet, but it can also show up off the balance sheet in a variety of contingent obligations.

CM-1.1.2

Exposure to credit risk, notably in the form of traditional bank lending, has historically been the most frequent source of bank problems. The assessment of credit risk is a challenging task where bankers are often faced with making decisions based on outdated or partial information.

CM-1.1.3

The lack of continuous loan supervision and effective internal controls, or the failure to identify abuse and fraud are also sources of risk. The overall lending policy of the bank should be monitored by a Credit Committee composed of officers with adequate seniority and experience.

CM-1.2.1

Proper credit risk management will help banks to discipline their lending activities and ensure that credit facilities are granted on a sound basis, and that bank funds are invested in a profitable manner. The process of managing credit risk starts at the origination of the credit facility. Standards for credit analysis should stress the borrower's ability to meet his future financial needs through analysis of his cash-flow generation capacity.

CM-1.2.2

Measurement of credit risk is complicated by the fact that both credit exposures and the likelihood of default can vary over time and may be interdependent. The creditworthiness of customers shifts, as reflected in credit rating upgrades and downgrades. Customers that originally are highly rated are more likely to default later in a loan's life than earlier.

CM-1.2.3

Banks should properly assess the inherent risk factor of each credit facility; monitor the risks arising from any portfolio concentration; and ensure that appropriate precautions against losses have been taken in the form of collateral and/or provisioning as described in Chapter CM-2.

CM-1.2.4

Banks which provide credit facilities to residents in Bahrain must become members of the Credit Reference Bureau (CRB). All requests for new credit facilities in Bahrain must be submitted to the CRB.

CM-1.2.5

All CRB members must fully abide by the agreed Code of Practice of the CRB (see Appendix CM-3), in matters such as the protection of confidential customer data and payment of enquiry fees. Any such breaches will be viewed as calling into question the "fit and proper status" of persons involved, potentially making the licensee and the person liable to enforcement action by the CBB.

CM-1.2.6

All CRB members must meet the following requirements and incorporate them into their policies and procedures:

CM-1.2.7

Failure to comply with Article 68(bis(2)) of the CBB Law and Paragraph CM-1.2.6 may result in an enforcement action taken against the CRB member, as well as the relevant employee in accordance with CBB Law.

CM-1.3.1

A properly documented credit policy is an essential element of and prerequisite for the credit risk management process. Consistent with the Board's objectives, it assists bank management in the maintenance of proper credit standards and the avoidance of unnecessary risks.

CM-1.3.2

It is prudent to review the credit policy regularly to ensure that once it is established, it remains flexible enough to be current and continues to accomplish its original purpose taking into consideration market developments.

CM-1.3.3

Explicit guidelines in credit policy provide the basis for effective credit portfolio management. A sound credit policy should consider which types of credit products and borrowers the bank is looking for and the underwriting standards the bank will utilize.

CM-1.3.4

A bank's credit policy should address all credit matters of significance including:

CM-1.3.5

After the credit facility has been granted, its performance should be monitored at regular intervals. This includes an appropriate periodic review of financial statements, a reassessment of collateral and update of appraisals, and attentive monitoring of conditions in the borrower's industry. Credit supervision constitutes the first line of detection of difficulties and provides the bank with an opportunity to address problems before losses are sustained.

CM-2.1.1

A realistic assessment of credit quality is an essential feature of effective credit risk management. The starting point for a systematic review of credit quality is a comprehensive review of the bank's written credit policies and practices. These include, but are not limited to:

CM-2.1.2

Credit quality is a relative concept based on performance prospects and external variables. Trends in the economy and changes in markets and prices of goods affect the evaluation of loan repayment value. Assessing credit risk is a dynamic concept which needs to take into account the business cycle and the economic environment.

CM-2.1.3

The objectives of the credit assessment are to determine:

CM-2.2.1

Credit officers should assign credit ratings to the loans they originate. This will help the Credit Committee to assess the credit judgement in assigning credit ratings and pricing for credits. The ratings should have several categories with additional breakdowns in each Category:

CM-2.2.2

The classification should normally apply to the entire balance of an outstanding facility because if a problem exists with the one credit, it normally applies to the whole facility and not just the payment or individual credit, which may be overdue. This is a conservative approach, which will alert bank management and the Board to the full extent of a potential problem.

CM-2.3.1

The extension of credit is often supported by collateral provided by the customer or third parties. When the loan decision is based on collateral value, independent timely appraisals of the collateral should be obligatory, including provision for sufficient security margins.

CM-2.3.2

In principle, collateral can improve the credit rating of a customer, but experience suggests that over-reliance on collateral is unsound because very often when a loan goes sour the collateral turns out to have less value than estimated or is, at worst, illusory.

CM-2.3.3

Misjudgements about collectability are frequently the cause; collateral is often illiquid, difficult to value during periods of financial distress and costly to realise through foreclosure or other legal means. Particular concern may be appropriate in the case of collateral in the form of real estate, as it involves additional uncertainties and the costs of maintaining the property.

CM-2.3.4

As a matter of principle, collateral should not replace a careful assessment of the borrower's ability to repay.

CM-3.1.1

Credit culture is defined as the sum total of a bank's approach to managing credit risk, including business strategy, credit policy, shared assumptions about credit, the effectiveness of communications, and the composition and quality of the resulting loan portfolio.

CM-3.1.2

As a matter of best practice, all banks should periodically review their credit cultures in order to reduce future credit losses and also to minimise reputational risk and damage to their credit ratings.

CM-3.1.3

The CBB draws all licensed banks' attention to the September 2000 document issued by the Basel Committee entitled 'Principles for the Management of Credit Risk'. This document contains 17 principles which all banks should ensure are covered in their credit culture (i.e. policies, procedures, systems and controls) (see www.bis.org/publ/bcbs75.pdf).

CM-3.1.4

Effective from the date of the original circular (see Section CM-A.3), the CBB will use the Basel document mentioned above as a guideline in its evaluation of the credit cultures of banks operating in Bahrain. Evaluation will be implemented through prudential meetings, inspection and reporting accountants' reviews.

CM-3.2.1

First, the regulation in this Section is recommendatory in nature (except for the requirement in Paragraphs CM-3.2.2 (a) & (e) below), and the guidelines below under the five headings are indicative of best practice. Some of the guidelines may not be appropriate to all relevant licensees. However, if a bank is not following these guidelines, it should consider why it is not doing so.

CM-3.2.2

Secondly, the regulation in this Section is intended as a complement to the September 2000 Paper by the Basel Committee entitled 'Principles for the Management of Credit Risk' (see Section CM-B.2). This Section does not summarise the Basel Paper, but is intended to be read in conjunction with the above Paper.

CM-3.3.1

Banks are exposed to credit risk when they provide large credit facilities on a 'clean' basis (i.e. without collateral or security). This risk is amplified, specifically, when such clean lending is made without adequate (up to date) financial information.

CM-3.3.2

In many banks there is a tendency to indulge in 'name-lending' without any credit analysis or understanding of the concerned counterparty's current borrowings from other banks. The CBB strongly discourages the banks to engage in such activities in order to minimise their credit risk and reputational risk.

CM-4.1.1

Credit rating (see Section CM-2.2) provides a basis for determining an adequate level of provisions for possible loan losses. The loss potential within specific credits will have to be determined on a case by case basis after all credit and collateral factors have been evaluated. Such potential losses, together with a general provision for the remainder of the portfolio where specific risks have not been identified, form the basis for establishing an adequate level of provisions.

CM-4.1.2

For the purpose of this Chapter, 'Non-performing loans' are those on which payments of interest or repayments of principal are 90 days or more past due.

Interest in Suspense

IAS 39 Transitional Adjustments for Provisions

CM-4.3.1

The CBB has, for some time, been monitoring the practices adopted by branches of foreign banks in Bahrain with regard to the making and maintaining of provisions against bad and doubtful debts in their books in Bahrain. The CBB is aware that it is the policy of some foreign banks in Bahrain to maintain provisions at their head offices, and not in their books in Bahrain. In the interests of prudence, the CBB has reviewed this matter and issues this Regulation to reflect its requirements in this area.

CM-4.3.2

Specific provisions for the bad and doubtful debts (as well as any other non-performing assets) of overseas conventional bank licensees must be maintained in the books of the Bahrain branch(es).

CM-4.3.3

If the bank is not able to meet the requirement in Paragraph CM-4.3.2, the bank's head office must advise the CBB, on an annual basis and in writing, of the amount of provisions set aside for the Bahrain branch(es)'s bad debts (and any other non-performing assets).

CM-4.3.4

In addition, the CBB may contact the bank's home supervisor, on a regular or ad hoc basis, in order to obtain information about the adequacy of the provisioning for such assets.

CM-4.4.1

The CBB has consistently encouraged banks to maintain adequate provisions against loans to borrowers experiencing difficulties and against loans for countries with current or potential debt servicing difficulties.

CM-4.4.2

In all cases the assessment of loans - and decisions regarding adequate provisions - are assisted by the categorization of loans as defined by the CBB in Section CM-2.2. In addition, with regard to 'sovereign debt' it is particularly important that the size of the provisions made should be based on the identification and objective assessment of the nature and extent of difficulties being experienced by particular countries and reflect as near as possible deterioration in the prospects for recovering debts. With these objectives in mind, the Sovereign Debt Provisioning Matrix (see Appendix CM-1) contains a list of measurements which have been designed to help identify those borrowers and countries with payment difficulties and to decide what would constitute adequate provisions.

CM-4.4.3

It is emphasized that this Section and the Sovereign Debt Provisioning Matrix (see Appendix CM-1) are merely a general framework for assessing degrees of provisions. They should not be regarded as an exhaustive or definitive framework. Nevertheless, the CBB does intend to include the results of banks' calculations in its discussions with them, and to establish that adequate provisions are being made.

Implications of International Accounting Standard (IAS) no. 39 on the Provisions Assessed through Sovereign Debt Provisioning Matrix

CM-4.5.1

The CBB requires all conventional bank licensees to set out their policy on country and transfer risks, including the criteria on downgrading a country exposure from stage 1 to stages 2 or 3, and related provisioning requirements, in a policy statement which must be approved by the CBB.

CM-4.5.2

For the purpose of Paragraph CM-4.5.1, conventional bank licensees, may consider the sovereign risk matrix factors, stipulated in Appendix CM-1 (Sovereign Debt Provision Matrix), and any other factors.

CM-4.5.3

Branches of foreign bank licensees must satisfy the CBB that equivalent arrangements are in place at the parent entity level, otherwise a policy would be required in line with Paragraph CM-4.5.1.

CM-4.5.4

The policy statement set in Paragraph CM-4.5.1 must be implemented with effect from 1st January 2018.

CM-5.1.1

The CBB's directives on large exposures for banks in Bahrain is issued as part of the CBB's measures to encourage banks to mitigate risk concentrations.

CM-5.1.2

The contents of this Chapter apply in full to all Bahraini conventional bank licensees on a consolidated basis.

CM-5.1.3

Banks, through the PIR forms (see Module CA), must notify the CBB of the subsidiaries to be consolidated for reporting purposes.

CM-5.1.4 [deleted]

CM-5.2.1

The CBB's policy towards large exposures on the books of overseas conventional bank licensees is to ensure that such exposures are within the policy statement of the parent bank, as agreed by the parent regulatory authority.

CM-5.2.2

All overseas conventional bank licensees must report their 25 largest exposures to the CBB.

CM-5.2.3

The CBB may, if circumstances so require and on a case-by-case basis, apply the full requirements of this Chapter to overseas conventional bank licensees.

CM-5.3.1

For large exposure(s) purposes, the measure of exposure reflects the maximum loss that will arise should a counterparty fail or the loss that may arise due to the realisation of any lending assets, shareholdings or other exposures or off-balance sheet positions, or losses experienced due to non-repayment of facilities granted. In certain cases (particularly derivatives), the measure of a large exposure may be larger than that used in published financial statements. Consistent with this, an exposure encompasses the amount at risk arising from a bank's:

CM-5.3.2

As a general rule, exposures must be reported on a gross basis (i.e. no offset). However, debit balances on accounts may be offset against credit balances on other accounts with the bank if:

CM-5.3.3

Large exposures are calculated using the sum of the nominal amounts before the application of risk weighting and credit conversion factors for:

The amount at risk from derivative contracts is taken to be the credit equivalent amount calculated based on the guidelines for the prudential returns (see Module CA). In the case of equity exposures, the current fair value as shown in the books of the bank must be taken as the measure of exposure.

CM-5.3.4

In case of syndicated facilities, the nominal amount would include only the bank's share of the syndication and any amounts for which binding commitments from other financial institutions are not available. Where a binding commitment is available, that amount would be excluded in calculation of the large exposures. See Section CM-5.6 for exemptions.

CM-5.3.5

A bank's exposure arising from securities' trading operations is calculated as its net long position in a particular security (a short position in one security issue may not be offset against a long position in another issue made by the same issuer). A bank's 'net long position' in a security refers to its commitment to buy that security together with its current holdings of the same security, less its commitment to sell such securities.

CM-5.3.6

"Underwriting" is defined as "A binding commitment by the reporting bank to purchase securities issued by, or provide syndicated loans/credit facilities to (as the case may be) an unconnected party ("the issuer" or "the borrower") at a mutually agreed price. Underwriting does not take place if a bank commits to purchase its own securities or securities issued by a party connected to it as there is no transfer of risk; therefore banks may not utilise the limits concerned with these definitions in connection with any commitments to any connected counterparties." Temporary exposure limits for "underwriting" and other investment business related exposures are covered in more detail in paragraphs CM-5.6.2A-F.

CM-5.4.1

For the purposes of measuring exposures, the counterparty will generally be: the person from whom the concerned funds are receivable (in the case of fees and commissions etc.); the borrower (customer) in the case of credit facilities; the person guaranteed, the issuer of a security in the case of a security held, or the party with whom a contract was made in the case of a derivative contract.

CM-5.4.2

Where a third party has provided an eligible guarantee, and subject to the guaranteed bank's policy statement not stating otherwise, the guaranteed bank may be permitted to report the exposure as being to the third party guarantor, rather than the person guaranteed (see Chapter CA-4 for full conditions relating to the recognition of guarantees for regulatory purposes).

Definitions and Aggregate Limit on Large Exposures

Single Exposure Limit to Unconnected Counterparties – 15%

Closely Related Counterparties — Definitions

Limit on Exposures to Connected Counterparties – 25% Aggregate

0% Limit on Exposures to Controllers

Deductions from Total Capital

Exempt Exposures to Parties not Connected to the Bank

Temporary Exposure Limits to Commercial Entities not Connected to the Bank

Exempt Exposures to Connected Counterparties

Exposures Undertaken by a Subsidiary Bank

CM-5.7.1

All conventional bank licensees are required to report their 25 largest exposures to banks as well as their 25 largest exposures to non-banks to the CBB on a quarterly basis using the Form PIR provided in Appendix BR-5.

CM-5.7.1A

All Bahraini conventional bank licensees must report the financial details of each large exposure, as defined under Paragraph CM-5.5.1, in Appendix BR-19, as required under Paragraph BR-3.1.10.

CM-5.7.1B

All Bahraini conventional bank licensees must report all their exposures to connected parties on a monthly basis using the form provided in Appendix BR-11, as required under Paragraph BR-4.3.4.

CM-5.7.2

Banks are required to adopt policies and set internal limits, which will not lead to the exposure limit(s) referred to above being exceeded as a matter of course.

CM-5.7.3

For some banks, the CBB may determine it prudent to set lower exposure limits than the ones given in this Module.

CM-5.7.4

Should any bank incur, or may incur an exposure to an individual counterparty (other than an exempt exposure) which results in or may result in it exceeding any of the limits set out above, this must be reported immediately to the CBB for its consideration. Where the exposure or counterparty is not exempt, action must be taken to immediately bring the exposure back within applicable limits as soon as possible.

CM-5.8.1

The CBB requires each Bahraini conventional bank licensee to set out its policy and internal limits on large exposures, including limits for differing types of exposures to individual customers, banks, corporates, countries and economic and market sectors, in a policy statement which must be formally approved by the Board of Directors and then submitted to the CBB. The Policy Statement must be part of the Risk management Policy of the bank. Furthermore, banks must not implement significant changes to these policies without prior discussion with the CBB.

CM-5.8.2

The policy statement must identify 'connected counterparties' and the bank's policies towards lending to and investing in these counterparties.

CM-5.8.3

The bank must explain and justify any requests for exemptions for lending to/investments in connected counterparties.

CM-5.8.4

Each bank will be expected to justify to the CBB in the policy document its policy on exposures to individual counterparties, including the maximum size of an exposure contemplated.

CM-5.8.5

Exposures to counterparties connected with the bank will continue to be particularly closely examined.

CM-5.8.6

The necessary control systems to give effect to a bank's policy on large exposures must be clearly specified and monitored by its Board.

CM-5.8.7

Banks are required to implement appropriate internal systems and controls to monitor the size of their Total Capital on a daily basis to ensure that the limits detailed in this Module are not exceeded.

CM-5.9.1

The extent to which a bank may be prudently exposed to a particular geographic, economic and market sector will vary considerably depending upon the characteristics and strategy of the bank, and the sector concerned.

CM-5.9.2

Concentrations should also be recognised in not just geographic and economic sectors, but also in markets (e.g. individual stock exchanges). The CBB will not apply common maximum percentages to banks' sectoral or market exposures but, instead, will continue to monitor such exposures on an individual and general basis.

CM-5.9.3

Banks must specify in their policy statements how they define geographic, economic and market sectors, and what limits apply to differing sectors.

CM-5.9.4

Exposures and limits for sectors must be reviewed at least quarterly by the Board of Directors.

CM-5.9.5

Banks which have over 10% of their risk-adjusted assets in market risk (i.e. the trading book) must also set market risk concentration limits.

Credit Risk and Investment Risk

Initial Approval Requirement for Major Investments

[This Section was deleted in October 2016.]

Other Requirements

CBB Criteria for Assessment of Major Investments by Bahraini Conventional Bank Licensees

CM-5.11.1

No Bahraini conventional bank licensee may have a significant investment in the capital instruments of a commercial entity where the significant investment amount and any other exposure to the subject entity is more than 15% of the concerned bank's consolidated Total Capital.

CM-5.11.2

The total amount of a bank's significant investments in unconnected commercial entities may not exceed 60% of the concerned bank's consolidated Total Capital.

CM-5.11.3

Any excesses above the limits in Paragraphs CM-5.11.1 and CM-5.11.2 must be risk-weighted at 800% according to Paragraph CA-2.4.25.

CM-5.11.4

For purposes of this Section, 'significant investments' in a commercial entity is defined as any investment in the capital instruments of a commercial entity by a Bahraini Conventional bank licensee which is equivalent to or more than 10% of the issued common share capital of the issuing commercial entity.

CM-5.11.5

This section refers to the treatment of investments in entities which are otherwise not connected to the concerned bank (i.e. the bank's connection to the entity is by way of shareholding or holding of other capital instruments). If a bank is investing in a company where there is a connection by way of mutual directors or mutual parent, or some other relationship that makes the investee a 'related party' as defined by IFRS, then the 'significant investment' must be treated as an exposure to a connected counterparty and the concerned limits and rules for exposures to connected counterparties apply.

CM-6.1.1

The CBB's prior written consent must be obtained for any loan to an employee where the amount of such loan, either singly or when added to an existing loan(s) outstanding to that employee at that date, would be equal to or in excess of BD 100,000, or its equivalent in foreign currency. Banks must notify the CBB in writing of any senior employee who fails to discharge his repayment obligations.

CM-6.1.1A

Where a bank seeks the CBB's prior approval as required under Paragraph CM-6.1.1, in its request, the bank must confirm that the employee loan is in line with the bank's board approved policy. The request must also confirm that the bank has made an internal assessment and evaluation when reaching the decision to grant the employee loan and that all necessary internal approvals have been obtained.

CM-6.1.2

Banks must ensure that the provisions of relevant laws (including, specifically, the Bahrain Labour Law) are observed at all times in this area.

CM-7.1.1

All Bahraini conventional bank licensees must notify the CBB of any write-off of an exposure of an amount in excess of BD 100,000, or its equivalent in foreign currency.

CM-7.1.2

Such notification should be accompanied by documentary evidence showing, beyond reasonable doubt, that the customer does not possess the resources to fulfil the outstanding obligation.

CM-7.1.3

All Bahraini conventional bank licensees must obtain the CBB's written no-objection before writing off any of the following:

CM-7.1.3A

All branches of foreign banks must obtain the CBB's written no-objection before writing off the exposures listed in CM-7.1.3 from (a) to (f) except for (c).

CM-7.1.4

All conventional bank licensees must notify the CBB of any applicable exposures outlined in Paragraph CM-7.1.3 that are classified as non-performing loans.

CM-7.1.5

In order to comply with Subparagraphs CM-7.1.3 (a) and (f), conventional bank licensees should refer to the CBB register on the CBB Website which contains a list of approved persons and controllers of all CBB licensees.

CM-8.1.1

This Chapter sets out various requirements regarding the provision of consumer finance within the Kingdom of Bahrain, by the CBB licensees. The aim of these requirements is to encourage:

Application Date

CM-8.2.1

The CBB favours an open, market-based approach to the operations of licensees, to the extent consistent with its regulatory objectives of ensuring a stable financial system and the fair treatment of licensees' customers.

CM-8.2.2

Bank licensees are reminded of their obligation to implement a sound internal controls framework, including an effective credit culture (see, for instance, Section CM-2.3). Bank licensees are also reminded of their obligations to display and communicate charges and APRs clearly (see, for instance, Section BC-4.3).

CM-8.2.3

The CBB has noted the growth in consumer finance as a proportion of outstanding credit facilities over the past few years. The CBB is concerned that this growth should not be at the cost of declining credit quality. Furthermore, the CBB wishes to see further improvements in licensees' transparency in their dealings with their customers, as regards the costs and terms of their lending. Strong competition in this segment of the market increases the need for licensees to be vigilant and to resist pressures to relax standards.

CM-8.2.4

The measures presented in this Chapter should be viewed as minimum standards, rather than best practice. They are aimed at encouraging prudent lending and full, frank and fair disclosures, rather than dictating comprehensively how licensees should engage in consumer finance. These measures should be read in conjunction with the "Code of Best Practice on Consumer Credit and Charging" which was agreed jointly between the CBB and the Bahrain Association of Banks (see Appendix CM-2).

CM-8.2.5

These measures will be kept under review in the light of market developments and adjusted accordingly. If the CBB assesses that credit quality and effective transparency are being significantly undermined, then additional prescriptive measures will be considered.

On-going Effort by the CBB

CM-8.3.1

Consumer finance is the provision of any form of credit facility to an individual excluding:

CM-8.3.2

For the purposes of the Rulebook, 'credit facility' includes personal overdraft facilities, credit cards, consumer loans or other financing facilities. 'Consumer loans' are defined as loans for a fixed period to individuals for non-business purposes.

Total Repayments Ratio

Maximum Tenor Limit

Non-compliant facilities

[Deleted]

[Deleted]

Refund/Adjustment of Insurance Pemium on Loan Prepayments and Top-Ups

Early Repayment Fees/Charges