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  • CA-B CA-B Scope of Application and Transitional Rules

    • CA-B.1 CA-B.1 Scope

      • CA-B.1.1

        All Bahraini conventional bank licensees are required to measure and apply capital charges with respect to their credit risk, operational risk and market risks capital requirements.

        January 2015

      • CA-B.1.2

        Rules in this Module are applicable to Bahraini conventional bank licensees on both a solo (i.e. including their foreign branches) and on a consolidated group basis as described below. The applicable ratios and methodology are described in this Chapter and Chapters CA-1 and CA-2 for solo and consolidated CAR calculations.

        January 2015

      • CA-B.1.2A

        The scope of this Module includes the parent bank and all its banking subsidiaries and any other financial entities such as Special Purpose Vehicles (SPVs) which are required to be consolidated for regulatory purposes by the CBB. The assets and liabilities of all such subsidiaries must be fully consolidated on a line-by-line basis. In some cases, the assets of foreign banking subsidiaries will be allowed to be included by way of aggregation (see CA-B.1.4 onward). All other financial activities (both regulated and unregulated) must be captured through consolidation where practical to do so. Generally, majority-owned or controlled financial entities must be fully consolidated according to the methodologies outlined in this Module. If any majority-owned financial entities are not consolidated for capital purposes, all equity and other regulatory capital investments in those entities must be deducted and the assets and liabilities as well as third-party capital investments in the entity must be removed from the conventional bank licensee's balance sheet.

        January 2015

      • CA-B.1.2B

        In addition, this Module applies to conventional bank licensees on a solo basis (also including their foreign branches). This means that the assets and liabilities of subsidiaries referred to in Paragraph CA-B.1.2A must not be included in the balance sheet of the parent bank for the solo capital calculation and all equity and other regulatory capital investments in those entities must be deducted from the applicable components of Total Capital of the parent bank.

        January 2015

      • CA-B.1.2C

        Where a conventional bank licensee has no subsidiaries as referred to in Paragraph CA-B.1.2A, then the consolidated CAR requirements of this Module apply to the conventional bank licensee on a stand-alone basis.

        January 2015

      • CA-B.1.2D

        Although consolidation outlined in this Module are prescribed only for computing regulatory minimum capital, the procedures applied for such consolidation are performed in accordance with applicable accounting standards and best practices which may be subject to change from time to time.

        January 2015

      • CA-B.1.3

        If conventional bank licensees have investments in or control over banking or financial entities, including SPVs, they will also need to apply rules set out in Section CA-2.4 for the calculation of their solo and consolidated Capital Adequacy Ratios (CAR).

        January 2015

      • Full Consolidation Versus Aggregation

        • CA-B.1.4

          Generally, wherever possible, the assets and liabilities of banking subsidiaries must be consolidated on a line-by-line basis using the risk-weighting and other rules and guidance in this Module. In some cases, foreign banking subsidiaries are subject to slightly differing rules by their host regulator. In such cases it may be more convenient to add in the risk-weighted assets of the subsidiary as calculated by host rules rather than by adding in the assets of the subsidiary and subjecting them to CBB requirements and risk weights. This process of using host risk-weights instead of CBB risk-weights is termed 'aggregation'. Also host rules may treat some capital items differently to CBB rules. For example, T2 instruments may have different rules in host countries. There may therefore need to be a 'haircut' to such capital instruments, if the amount allowed by the host regulator is different to the amount of the investment by the parent bank.

          January 2015

        • CA-B.1.5

          For the reasons outlined in Paragraphs CA-B.1.2A to CA-B.1.4, banks must agree the proposed regulatory consolidation or aggregation approach for banking subsidiaries with the CBB and their external auditor.

          Amended: July 2017
          January 2015

        • CA-B.1.6

          If a banking subsidiary is to be consolidated by way of aggregation, the capital and risk weighted assets (RWAs) of the non-resident entity must be shown separately. The parent bank is required to aggregate the subsidiary's eligible capital and RWAs (based on the risk weighting of assets reported by the subsidiary to its host central bank) with its own eligible capital and RWAs respectively.

          Amended: July 2017
          January 2015

        • CA-B.1.7

          Appropriate adjustments must be made to eliminate intra-group exposures.

          January 2015

        • CA-B.1.8

          If a conventional bank operates an Islamic window, the assets of such Islamic window will be risk weighted in accordance with CBB's guidelines for conventional banks.

          January 2015

        • CA-B.1.9

          If a bank in Bahrain is a subsidiary of a non-resident parent bank, the capital adequacy of such bank is determined on a standalone basis.

          January 2015

        • CA-B.1.10

          Majority-owned or controlled financial entity subsidiaries must be adequately capitalised to reduce the possibility of future potential losses to the parent bank. The parent bank must monitor actions taken by the subsidiary to correct any capital shortfall and, if it is not corrected in a timely manner, the shortfall must also be deducted from the parent bank's solo and consolidated capital for regulatory capital purposes.

          January 2015

    • CA-B.2 CA-B.2 Transitional Arrangements

      • CA-B.2.1

        The transitional arrangements for implementing the new standards help to ensure that the banking sector can meet the higher capital standards through reasonable earnings retention and capital raising, while still supporting lending to the economy. The transitional arrangements are as follows:

        (a) Implementation of this Module begins on 1 January 2015. As of 1 January 2015, conventional bank licensees are required to meet the following new minimum CAR requirements taking each component of capital as defined in Chapters CA-2 and CA-2A divided by total risk-weighted assets (RWAs) as defined in Paragraph CA-1.1.3:

        Components of Consolidated CARs
          Optional Minimum Ratio Required
        Core Equity Tier 1 (CET 1)   6.5%
        Additional Tier 1 (AT1) 1.5%  
        Tier 1 (T1)   8%
        Tier 2 (T2) 2%  
        Total Capital   10%
        Capital Conservation Buffer (CCB) (see below)   2.5%
        CARs including CCB
        CET 1 plus CCB   9%
        Tier 1 plus CCB   10.5%
        Total Capital plus CCB   12.5%

        Components of Solo CARs
          Optional Minimum Ratio Required
        Core Equity Tier 1 (CET1)   4.5%
        Additional Tier 1 (AT1) 1.5%  
        Tier 1 (T1)   6.0%
        Tier 2 (T2) 2%  
        Total Capital   8.0%
        Capital Conservation Buffer (CCB) (see below)   0%
        CARs including CCB
        CET 1 plus CCB   N/A
        Tier 1 plus CCB   N/A
        Total Capital plus CCB   N/A
        (b) The difference between the Total Capital plus CCB (Capital Conservation Buffer — see Chapter CA-2A for more details) of 12.5% and the T1 plus CCB requirement (10.5%) for the consolidated CAR can be met with T2 and higher forms of capital;
        (c) The regulatory adjustments (i.e. deductions), including amounts above the aggregate 15% limit for significant investments in financial institutions, mortgage servicing rights, and deferred tax assets from temporary differences, are fully deducted from CET1 by 1 January 2019;
        (d) The regulatory adjustments (refer to Section CA-2.4) begin at 20% of the required adjustments to CET 1 on 1 January 2015, 40% on 1 January 2016, 60% on 1 January 2017, 80% on 1 January 2018, and reach 100% on 1 January 2019. The same transition approach applies to deductions from AT1 and T2 capital. Specifically, the regulatory adjustments to AT1 and T2 capital begin at 20% of the required deductions on 1 January 2015, 40% on 1 January 2016, 60% on 1 January 2017, 80% on 1 January 2018, and reach 100% on 1 January 2019. During the transition period, the remainder of exposures held prior to 1st January 2015 not deducted from capital is subject to the risk weights outlined in the October 2014 version of Chapter CA-3;
        (e) The treatment of capital issued out of subsidiaries and held by third parties (e.g. minority interest) is also phased in. Where such capital is eligible for inclusion in one of the three components of capital according to Paragraphs CA-2.3.1 to CA-2.3.5, it can be included from 1 January 2015. Where such capital is not eligible for inclusion in one of the three components of capital but is included under the existing treatment, 20% of this amount must be excluded from the relevant component of capital on 1 January 2015, 40% on 1 January 2016, 60% on 1 January 2017, 80% on 1 January 2018, and reach 100% on 1 January 2019; and
        (f) Capital instruments that no longer qualify as non-common equity T1 capital or T2 capital are phased out beginning 1 January 2015. Fixing the base at the nominal amount of such instruments outstanding on 1 January 2015, their recognition is capped at 90% from 1 January 2015, with the cap reducing by 10 percentage points in each subsequent year. This cap is applied to AT1 and T2 separately and refers to the total amount of instruments outstanding that no longer meet the relevant entry criteria. To the extent an instrument is redeemed, or its recognition in capital is amortised, after 1 January 2015, the nominal amount serving as the base is not reduced. In addition, instruments with an incentive to be redeemed are treated as follows:
        (i) For an instrument that has a call and a step-up prior to 1 January 2015 (or another incentive to be redeemed), if the instrument is not called at its effective maturity date and on a forward-looking basis meets the new criteria for inclusion in T1 or T2, it continues to be recognised in that tier of capital;
        (ii) For an instrument that has a call and a step-up on or after 1 January 2015 (or another incentive to be redeemed), if the instrument is not called at its effective maturity date and on a forward looking basis meets the new criteria for inclusion in T1 or T2, it continues to be recognised in that tier of capital. Prior to the effective maturity date, the instrument would be considered an "instrument that no longer qualifies as AT1 or T2" and is therefore phased out from 1 January 2015;
        (iii) For an instrument that has a call and a step-up between 12 September 2012 and 1 January 2015 (or another incentive to be redeemed), if the instrument is not called at its effective maturity date and on a forward looking basis does not meet the new criteria for inclusion in T1 or T2, it is fully derecognised in that tier of regulatory capital from 1 January 2015;
        (iv) For an instrument that has a call and a step-up on or after 1 January 2015 (or another incentive to be redeemed), if the instrument is not called at its effective maturity date and on a forward looking basis does not meet the new criteria for inclusion in T1 or T2, it is derecognised in that tier of regulatory capital from the effective maturity date. Prior to the effective maturity date, the instrument would be considered an "instrument that no longer qualifies as AT1 or T2" and is therefore phased out from 1 January 2015; and
        (v) For an instrument that had a call and a step-up on or prior to 12 September 2012 (or another incentive to be redeemed), if the instrument was not called at its effective maturity date and on a forward looking basis does not meet the new criteria for inclusion in T1 or T2, it is considered an "instrument that no longer qualifies as AT1 or T2" and is therefore phased out from 1 January 2015.
        Amended: July 2015
        January 2015

      • CA-B.2.2

        Capital instruments that do not meet the criteria for inclusion in CET1 are excluded from CET1 as of 1 January 2015.

        January 2015

      • CA-B.2.3

        Only those instruments issued before 12 September 2012 qualify for the transition arrangements outlined in Paragraph CA-B.2.1.

        January 2015