• CM-4 CM-4 Provisioning

    • CM-4.1 CM-4.1 Overview

      • 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.

        October 07

      • 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.

        October 07

    • CM-4.2 CM-4.2 Implications of IAS 39

      • Interest in Suspense

        • CM-4.2.1

          Banks must suspend interest on loans and advances which are 90 days or more past due.

          Amended: July 2011
          October 2007

      • IAS 39 Transitional Adjustments for Provisions

        • CM-4.2.2

          All IAS 39 transitional provisions must be routed through the retained earnings account with the exception of provisions.

          October 07

        • CM-4.2.3

          Under the IAS 39, as of 31 December 2000, the banks will have two options for the treatment of general provisions after considering the pooled general and specific provisions and interest in suspense balances in comparison to the estimated provisions resulting from the discounting of future cash flows. These options are:

          (a) Any excess general provisions balance brought forward over and above the newly estimated figure may be transferred directly to general reserves, or
          (b) Where provisions (or impairment allowances) relate to a portfolio of homogeneous loans (e.g. consumer loans) then such excess provisions may continue to be treated as a general provision for capital adequacy purposes (see Module CA).
          October 07

    • CM-4.3 CM-4.3 Provisioning Policies of Overseas Conventional Bank Licensees

      • 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.

        Amended: January 2011
        October 2007

      • 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).

        Amended: April 2014
        October 07

      • 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).

        Amended: April 2014
        Amended: July 2011
        Amended: January 2011
        October 2007

      • 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.

        Amended: April 2014
        Amended: January 2011
        October 2007

    • CM-4.4 CM-4.4 Provisions against Sovereign Debt

      • 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.

        Amended: January 2011
        October 2007

      • 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.

        Amended: January 2011
        October 2007

      • 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.

        Amended: January 2011
        October 2007

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

        • CM-4.4.4

          The banks must continue to apply the Sovereign Debt Provisioning Matrix (see Appendix CM-1) as a benchmark for estimating future recoverable cash receipts. However, if a lower provisioning amount is determined, i.e. lower than the amount identified through the matrix, and the bank intends to book the lower amount, then a meeting must be arranged with the CBB to discuss the issues before booking such provisions.

          Amended: July 2011
          Amended: January 2011
          October 2007

    • CM-4.5 CM-4.5 Country and Transfer Risks

      • 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.

        Added: July 2017

      • 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.

        Added: July 2017

      • 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.

        Added: July 2017

      • CM-4.5.4

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

        Added: July 2017