• CM-5.5 CM-5.5 Limits for Large Exposures

    • Definitions and Aggregate Limit on Large Exposures

      • CM-5.5.1

        A 'large exposure' is any exposure to counterparty or a group of closely related counterparties which is greater than, or equal to, 10% of the reporting bank's consolidated Total Capital.

        Amended: January 2015
        Amended: January 2011
        October 2007

      • CM-5.5.1A

        'Capital instrument' includes all components of equity capital including ordinary equity, both voting and non-voting, and preference shares. It also includes convertible or hybrid financial instruments which are debt — like in character and which may be converted into equity (such as convertible murabaha). Also for financial institutions and insurance companies, any other financial instruments (such as subordinated debt) which are eligible as regulatory capital should also be included as capital instruments. Sukuk or senior debt instruments would not normally be regarded as "capital instruments" unless they have convertibility features. Equity-like contracts such as joint venture musharaka contracts (investments but not financing) are also included in this definition. The musharaka stake is classified as a capital instrument at onset.

        Amended: January 2012
        Added: January 2011

      • CM-5.5.1B

        'Acquisition' means the acquiring by a bank of beneficial or legal ownership of capital instruments issued by another entity. This would not include securities underwriting until the expiry of the underwriting period (where separate arrangements apply elsewhere in this Module). Acquisition may also be in the form of exercising of rights to take control of capital instruments pledged as collateral. The pledging of capital instruments by a customer to a bank as collateral (e.g. for the purpose of obtaining credit) does not in itself mean that an "acquisition" has taken place. Acquisition also does not include the establishment of new subsidiaries by the bank. Regulatory requirements for the establishment of SPVs and subsidiaries are contained in Section BR-5.2.

        Amended: January 2015
        Amended: January 2012
        Added: January 2011

      • CM-5.5.1C

        'Investment' is any holding by a bank of capital instruments issued by a third party that is not a subsidiary of the bank. Therefore holdings of subordinated debt eligible as regulatory capital issued by another financial institution would be regarded as an "investment". In this case 'holding' means legal or beneficial ownership of capital instruments.

        Amended: January 2012
        Added: January 2011

      • CM-5.5.1D

        A bank is defined as "closely linked" with:

        (a) Any person/entity which qualifies as a controller of the concerned bank as defined in Chapter GR-5;
        (b) Any entity which is a subsidiary of the bank; and
        (c) Any entity which is an associate of the bank.
        Amended: January 2015
        Amended: January 2012
        Amended: April 2011
        Added: January 2011

      • CM-5.5.1E

        A "major investment" is defined as any acquisition or investment in the capital instruments of another entity by a Bahraini conventional bank licensee which is equivalent to or more than 10% of the Bahraini conventional bank licensee's consolidated total capital.

        Amended: October 2016
        Amended: April 2015
        Amended: January 2015
        Amended: January 2012
        Added: January 2011

      • CM-5.5.1F

        [This Paragraph was deleted in January 2015].

        Deleted: January 2015
        Amended: January 2012
        Added: January 2011

      • CM-5.5.2

        Total Capital has the same meaning as when used in Section CA-1.1.

        Amended: January 2015
        Amended: January 2011
        October 2007

      • CM-5.5.3

        The aggregate of large exposures may not exceed 800% of the bank's consolidated Total Capital (there are separate sub-limits for "significant investments" in Section CM-5.11), whether funded or not funded, i.e. contingent commitments.

        Amended: October 2016
        Amended: January 2015
        Amended: January 2011
        October 07

      • CM-5.5.3A

        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.

        Added: January 2017

    • Single Exposure Limit to Unconnected Counterparties – 15%

      • CM-5.5.4

        A bank may not incur an exposure to an individual counterparty or group of closely related counterparties (not connected to the reporting bank) which exceeds 15% of the reporting bank's consolidated Total Capital without the prior written approval of the CBB. Where such limit has been exceeded whether with or without the prior approval of the CBB, the excess amount must be risk-weighted at 800%.

        Amended: January 2015
        Amended: January 2011
        October 2007

    • Closely Related Counterparties — Definitions

      • 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 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.

        Amended: January 2011
        October 07

      • CM-5.5.5A

        The CBB shall exercise its discretion in considering two or more counterparties of a bank as closely related on a case by case basis if it finds during its onsite or offsite supervisory review any linkage of such counterparties.

        Added: January 2017

      • CM-5.5.6

        'Controlling interest' means either significant ownership (i.e. 20% or more of the voting rights) or any other interests (including, but not limited to, the ability to exercise or control the exercising of voting power in the other party) which enable the holder, or which would enable a proposed transferee, thereof to exercise significant influence over the management and business of the other party.

        Amended: July 2012
        Amended: January 2011
        October 2007

    • Limit on Exposures to Connected Counterparties – 25% 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 CBB.

        Amended: January 2011
        October 2007

      • CM-5.5.7A

        A bank may not exceed the individual or aggregate connected counterparty limits shown in Paragraph CM-5.5.11 without the prior written approval of the CBB.

        Added: July 2012

      • CM-5.5.8

        A bank may not undertake exposures to its own external auditors shall be permitted. In this context, 'external auditors' refers to the firm/partnership, the partners, the directors and managers of the audit firm.

        Amended: January 2011
        October 2007

      • CM-5.5.9

        For the purpose of this Module, 'Connected counterparties' includes companies or persons connected with the bank, including, in particular; controllers of the bank, (and their appointed board representatives) as defined in Chapter GR-5, subsidiaries, associates and related parties of the bank as defined by IFRS; holders of controlled functions in the bank as defined by Module LR-1A and their close family members(as defined by IFRS – IAS 24); members of the Shari'a Supervisory Board.

        Amended: January 2015
        Amended: July 2012
        Amended: July 2011
        Amended: January 2011
        October 2007

      • CM-5.5.9A

        Equity participations in and credit exposures to consolidated banking and financial subsidiaries (see CM-5.3.1(c)) need not be included in exposures to connected counterparties for the sake of the table in CM-5.5.11. Equity participations in and credit or financing exposures to unconsolidated subsidiaries are included in the definition of exposure in order to understand the degree of support the parent is supplying to its unconsolidated subsidiaries on a day-to-day basis.

        Added: January 2015

      • CM-5.5.9B

        The CBB shall exercise its discretion in applying the definition of connected counterparties of a bank on a case by case basis if it finds during its onsite or offsite supervisory review any linkage of such counterparties.

        Added: January 2017

      • CM-5.5.10

        Lending to senior management is covered under Chapter CM-6. All credit facilities to senior management are included under the limits given in the table under Paragraph CM-5.5.11.

        Amended: January 2015
        Amended: January 2011
        October 2007

      • CM-5.5.11

        Exposure limits for connected counterparties have been set as listed below. Exposures (both on and off-balance sheet) to all connected counterparties listed below, when taken together, may not exceed 25% of consolidated Total Capital. Where any of these limits have been exceeded whether with or without the prior approval of the CBB (see Paragraph CM-5.5.7A), the excess amount must be risk-weighted at 800%.

        Connected Counterparties Individual Limit Aggregate Limit
        Controllers and their subsidiaries 0% 0%
        Approved persons (and their close family members) and Shari'a Board Mem 10% 25%
        Associates, other related parties not mentioned above, and unconsolidated subsidiaries 15% 25%
        Total (including senior management and others) 25%
        Amended: October 2015
        Amended: January 2015
        Amended: July 2013
        Amended: July 2012
        Amended: January 2011
        October 2007

    • 0% Limit on Exposures to Controllers

      • CM-5.5.12

        Banks must not undertake exposures to their controllers as defined in Chapter GR-5 or to subsidiaries of such controllers (i.e. there is a 0% limit for such exposures), however smaller shareholders will be subject to the normal exposure limits outlined in CM-5.5.4. Directors who are also controllers (or the appointed board representatives of such controllers) are subject to the 0% limit.

        Amended: January 2015
        Amended: January 2011
        October 2007

    • Deductions from Total Capital

      • CM-5.5.13

        The CBB will closely examine all exposures to "connected counterparties" and will deduct them from the bank's consolidated Total Capital if they are, in the CBB's opinion, of the nature of a capital investment, or provision of long-term working capital, or are made on particularly concessionary terms.

        Amended: January 2015
        Amended: January 2011
        October 2007

      • CM-5.5.14

        Reciprocal cross-holdings of capital between a bank and its controllers (see GR-5) which artificially inflate the capital of licensee concerned are not permitted. Any cross-holdings that occur due to acquisitions or takeovers must be deducted from the concerned bank's Total Capital (see also CA-2).

        Amended: January 2015
        Added: January 2011

      • CM-5.5.15

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

        Amended: January 2011
        October 2007