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.