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 anyexposure tocounterparty or a group of closely relatedcounterparties which is greater than, or equal to, 10% of the reporting bank's consolidated Total Capital.Amended: January 2015
Amended: January 2011
October 2007CM-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 ascapital 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 acapital instrument at onset.Amended: January 2012
Added: January 2011CM-5.5.1B
'
Acquisition ' means the acquiring by a bank of beneficial or legal ownership ofcapital 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 ofcapital instruments pledged as collateral. The pledging ofcapital 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 newsubsidiaries by the bank. Regulatory requirements for the establishment of SPVs andsubsidiaries are contained in Section BR-5.2.Amended: January 2015
Amended: January 2012
Added: January 2011CM-5.5.1C
'
Investment ' is any holding by a bank ofcapital 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 ofcapital instruments .Amended: January 2012
Added: January 2011CM-5.5.1D
A bank is defined as "
closely linked " with:(a) Any person/entity which qualifies as acontroller of the concerned bank as defined in Chapter GR-5;(b) Any entity which is asubsidiary 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 2011CM-5.5.1E
A "
major investment " is defined as anyacquisition orinvestment in thecapital instruments of another entity by aBahraini 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 2011CM-5.5.1F
[This Paragraph was deleted in January 2015].
Deleted: January 2015
Amended: January 2012
Added: January 2011CM-5.5.2
Total Capital has the same meaning as when used in Section CA-1.1.
Amended: January 2015
Amended: January 2011
October 2007CM-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 07CM-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 2017Single Exposure Limit to Unconnected Counterparties – 15%
CM-5.5.4
A bank may not incur an
exposure to an individualcounterparty or group of closely relatedcounterparties (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 2007Closely Related Counterparties — Definitions
CM-5.5.5
'Closely related
counterparties ' are two or morecounterparties 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), orcounterparties 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 07CM-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 2017CM-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 2007Limit 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 largeexposures policy statement agreed with the CBB.Amended: January 2011
October 2007CM-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 2012CM-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 2007CM-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 ofcontrolled 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 2007CM-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 2015CM-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 2017CM-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 2007CM-5.5.11
Exposure limits for connected counterparties have been set as listed below.Exposures (both on and off-balance sheet) to all connectedcounterparties 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 Mem10% 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 20070% Limit on Exposures to Controllers
CM-5.5.12
Banks must not undertake
exposures to theircontrollers as defined in Chapter GR-5 or tosubsidiaries of suchcontrollers (i.e. there is a 0% limit for suchexposures ), however smaller shareholders will be subject to the normalexposure limits outlined in CM-5.5.4. Directors who are alsocontrollers (or the appointed board representatives of suchcontrollers ) are subject to the 0% limit.Amended: January 2015
Amended: January 2011
October 2007Deductions 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 capitalinvestment , or provision of long-term working capital, or are made on particularly concessionary terms.Amended: January 2015
Amended: January 2011
October 2007CM-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 toacquisitions or takeovers must be deducted from the concerned bank's Total Capital (see also CA-2).Amended: January 2015
Added: January 2011CM-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