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  • CA-3 CA-3 Credit risk

    • CA-3.1 CA-3.1 Introduction

      • CA-3.1.1

        This chapter describes the standardised approach for the measurement of the credit risk exposure in the bank's banking book.

      • CA-3.1.2

        As illustrated in sections CA-3.2 and CA-3.3, banks are required to apply a simple risk-weighted approach through which claims of different categories of counterparties are assigned risk weights according to broad categories of relative risk.

    • CA-3.2 CA-3.2 Risk weighting — On balance sheet asset category

      • CA-3.2.1

        Risk weights by category of on balance sheet asset are illustrated in the table below:

        Risk weights Category of on balance sheet assets/claims
        0%
        (a) Cash;

        (b) Holdings of Gold bullion and coins;

        (c) The government of Bahrain & Bahrain public sector entities;

        (d) Government-owned GCC companies incorporated in Bahrain;

        (e) Central governments and central banks of GCC and OECD countries; and

        (f) Central governments and central banks of classified countries where denominated and funded in local currency.
        20%
        (a) Cash items in process of collection;

        (b) Multilateral development banks;

        (c) Banks and securities firms incorporated in Bahrain, other GCC and OECD countries;

        (d) Banks incorporated in classified countries with a residual maturity less than 1 year;

        (e) Public sector entities in GCC and OECD countries; and

        (f) Government-owned GCC companies incorporated outside Bahrain.
        50% Mortgages backed by residential property
        100%
        (a) Related parties

        (b) Holdings of other banks' and securities firms' capital instruments

        (c) Banks incorporated in classified countries with a residual maturity of over 1 year

        (d) Central governments and central banks of classified countries (not included above)

        (e) Public sector entities of classified countries

        (f) Government-owned companies in non-GCC countries

        (g) Private sector persons and entities in and outside Bahrain

        (h) Istisna'a assets*

        (i) Ijarah / Ijarah Muntahia Bittamleek assets

        (j) Real estate investments

        (k) Other assets not reported elsewhere**

        * This represents balance in Work in Progress/ cost account less billings. However, Istisna'a receivables should be reported against the risk weighting category of the counterparty.

        ** Salam Contracts are subject to market risk and should not be included here.

    • CA-3.3 CA-3.3 Risk weighting — Off balance sheet items

      • CA-3.3.1

        The framework takes account of the credit risk on off balance sheet exposures by applying credit conversion factors to the different types of off balance sheet instruments or transactions.

      • CA-3.3.2

        The conversion factors are derived from the estimated size and likely occurrence of the credit exposure, as well as the relative degree of credit risk as identified in the Basel Committee's paper on "The management of banks' off-balance-sheet exposures: a supervisory perspective" (see www.bis.org/publ/bcbsc134.pdf) issued in March 1986.

      • CA-3.3.3

        The credit conversion factors applicable to the off balance sheet items are set out in the table below:

        Credit Conversion factors Off balance sheet items
        100% Direct credit substitutes
        50% Transaction-related contingent
        20% Trade-related contingencies
        100% Sale and repurchase agreements
        100% Forward asset purchases
        50% Underwriting commitments
        50% Commitments with an original maturity of over 1 year, not unconditionally cancellable at anytime
        0% Commitments with an original maturity of less than 1 year, unconditionally cancellable at anytime

      • CA-3.3.4

        The applicable credit conversion factors should be multiplied by the weights applicable to the category of the counterparty as set out below:

        Risk weights Counterparty
        0% Type (a)
        — The Government of Bahrain.
        — Bahrain public sector entities.
        — Government-owned (non-banking) GCC companies incorporated in Bahrain.
        — Central government and central banks of GCC and OECD member countries.
        20% Type (b)
        — Banks incorporated in Bahrain or GCC and OECD countries and securities firms.
        — Banks incorporated in classified countries (if the commitment has a residual life of 1 year or less).
        — Public sector entities in GCC and OECD countries.
        — Government-owned (non-banking) GCC companies incorporated outside Bahrain.
        100% Type (c)
        — Banks incorporated in classified countries (if the commitment has a residual life of more than 1 year).
        — Central governments, central banks and public sector entities in classified countries.
        — Government-owned companies incorporated in non-GCC countries.
        — Private sector persons and entities in Bahrain and abroad.