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  • CM-8 CM-8 Consumer Finance

    • CM-8.1 CM-8.1 Overview

      • 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:

        (a) Prudent lending by licensees providing consumer finance; and
        (b) The transparent disclosure of the full costs and terms on which licensees offer consumer finance.
        Amended: January 2011
        October 2007

      • Application Date

        • CM-8.1.2

          The content of this Chapter is to be applied to all consumer finance facilities entered into or renewed after 1 January 2005. The application date of the "Code of Best Practice on Consumer Credit and Charging" is 1 September 2007. All conventional banks which offer consumer finance facilities to residents of Bahrain must follow the Code after 1 September 2007. Failure to observe the requirements of this Chapter or the Code may result in Enforcement Action under module EN. The Code is attached as Appendix CM-2 in Part B of the Rulebook.

          October 07

    • CM-8.2 CM-8.2 The CBB's Approach to Consumer Finance

      • 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.

        Amended: January 2011
        October 2007

      • 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).

        October 07

      • 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.

        Amended: January 2011
        October 2007

      • 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).

        Amended: April 2014
        October 07

      • 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.

        Amended: January 2011
        October 2007

      • On-going Effort by the CBB

        • CM-8.2.6

          These measures form part of a wider response by the CBB. The CBB recognizes that a key contributor to ensuring a sounder credit environment is the credit reference bureau.

          Amended: January 2011
          October 2007

        • CM-8.2.7

          The CBB supervisors and examiners will also focus on banks' implementation of the "Code of Best Practice on Consumer Credit and Charging" in their on-going supervision of licensees, to monitor and encourage sound lending practices and disclosure standards.

          Amended: January 2011
          October 2007

    • CM-8.3 CM-8.3 Definition of Consumer Finance

      • CM-8.3.1

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

        (a) Any loan secured by a first charge on residential property to an individual, where the borrower lives in, or intends to live in the property;
        (b) Any credit facility secured by cash or investments, where the security provided more than covers the principal of the credit facility; and
        (c) The provision of any form of credit to an individual for business purposes where the facility is to be repaid from the business activities of the borrower.
        Amended: January 2011
        October 2007

      • 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.

        October 07

    • CM-8.4 CM-8.4 Maximum Limits

      • Total Repayments Ratio

        • CM-8.4.1

          Licensees may 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. This limit may only be exceeded in the circumstances described in Paragraphs CM-8.4.6 and CM-8.4.10.

          October 07

        • CM-8.4.2

          When reviewing an applicant for a consumer facility, licensees may only take into consideration regular income. A spouse's income may only be taken into consideration when the credit facility would be in joint names, such that the spouse would also be legally liable for the obligation incurred.

          October 07

        • CM-8.4.3

          Notwithstanding the above limit, licensees must review in detail an applicant's personal financial standing and ability to service their obligations. Where a spouse's income is being taken into consideration, then their individual circumstances must also be similarly assessed. In many cases, these reviews may require consumer finance repayments to be kept significantly below 50% of monthly gross income.

          October 07

        • CM-8.4.4

          Licensees must enquire as to applicants' sources of income, their past credit history, their regular outgoings and other financial commitments, including potential liabilities such as guarantees. Particular attention must be paid to housing costs (such as payments to Eskan Bank). A person's regular income, net of consumer finance repayments and other financial obligations, must remain sufficient for that person to support himself and any dependents. Licensees must also take into account likely future trends in income and outgoings, and the impact this may have on the 50% ratio.

          Amended: October 2013
          Amended: July 2011
          October 2007

        • CM-8.4.5

          When factoring in credit cards into the repayment limit in Paragraph CM-8.4.1 above, licensees must include 5% of the credit limits available on these facilities. If the amounts outstanding (including profit) under such facilities exceed their limit, then the full amount outstanding must be included in the repayments ratio calculation. Charge cards are not included under this definition.

          Amended: October 2016
          Amended: July 2011
          October 2007

        • CM-8.4.6

          In the case of high earners – defined for these purposes as persons earning more than BD 3,000 month - the 50% limit may be relaxed, providing that the licensee has undertaken the review required in Paragraph CM-8.4.4 above and is satisfied that the borrower can comfortably support a higher facility service ratio.

          October 07

        • CM-8.4.7

          The review undertaken to satisfy requirements in Paragraph CM-8.4.4 above must be documented and made available to the CBB's examiners on request. The documentation must include all relevant information used to support the decision to extend credit facilities. In the case of high earners granted a facility in excess of the 50% limit, the documentation must also include a written statement, signed by an appropriate member of management, explaining the justification for relaxing the limit.

          Amended: January 2011
          October 2007

      • Maximum Tenor Limit

        • CM-8.4.8

          The maximum tenor for instalment consumer finance facilities is seven years. The tenor may not be extended more than twice during the period of the agreement.

          October 07

        • CM-8.4.9

          The CBB does not believe it prudent for licensees to encourage lending by offering long-term borrowing to fund short-term consumption. The CBB will review the development of market practices in this respect and will consider further measures if required.

          Amended: January 2012
          Amended: January 2011
          October 2007

      • Non-compliant facilities

        • CM-8.4.10

          Where a customer's monthly gross income falls (e.g. due to redundancy or disability or a similar event outside the control of the customer), the bank must identify such accounts as 'technically non-compliant'. If a customer requests an extension to the tenor of the facility due to reduced income, then the bank may increase the term to assist the customer. The bank must take account of the 50% limit outlined in Paragraph CM-8.4.1. Such facilities must also be identified as 'technically non-compliant'.

          Amended: January 2022
          Amended: July 2021
          Amended: October 2019
          Amended: July 2012
          Added: October 07

    • CM-8.5 CM-8.5 [This Section was deleted in October 2012 and requirements are now included in Section BC-4.3]

      • [Deleted]

        • CM-8.5.1

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.2

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.3

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.4

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

      • [Deleted]

        • CM-8.5.5

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.6

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.7

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.8

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.9

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.10

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.11

          [This paragraph was deleted in October 2012]

          Deleted: October 2012

        • CM-8.5.12

          [This Paragraph was deleted in October 2011].

          Deleted: October 2011

    • CM-8.6 CM-8.6 Refunds and Prepayments

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

        • CM-8.6.1

          Banks/financing companies must refund/adjust proportionately the insurance premium charged on individual loans when the borrower either requests for a top-up or prepayment of the loan as per the prescribed formula below:

          Refund/Adjustment Amount = Remaining period to Maturity X Premium Paid
           Original Maturity 
          Added: April 2008

      • Early Repayment Fees/Charges

        • CM-8.6.2

          [This paragraph was deleted in April 2018].

          Deleted: April 2018
          Amended: July 2013
          Amended: January 2011
          Added: April 2008