• CM-A CM-A Introduction

    • CM-A.1 CM-A.1 Purpose

      • CM-A.1.1

        The purpose of this Module is to provide a checklist of the key elements of a sound credit risk management system which supervisors can expect their banks to observe. This requirement is supported by Article 44(c) of the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006).

        October 07

      • CM-A.1.2

        This Module provides support for certain other parts of the Rulebook, mainly:

        (a) Principles of Business;
        (b) CBB Reporting Requirements;
        (c) Audit Firms;
        (d) Public Disclosure;
        (e) High-level Controls; and
        (f) Capital Adequacy.
        October 07

      • Legal Basis

        • CM-A.1.3

          This Module contains the Central Bank of Bahrain's (CBB's) Directive (as amended from time to time) relating to the credit risk management of Islamic bank licensees, and is issued under the powers available to the CBB under Article 38 of the CBB Law. The Directive in this Module is applicable to all Islamic bank licensees.

          Amended: January 2011
          October 2007

        • CM-A.1.4

          For an explanation of the CBB's rule-making powers and different regulatory instruments, see Section UG-1.1.

          October 07

    • CM-A.2 CM-A.2 Key Requirements

      • CM-A.2.1

        Overseas Islamic bank licensees are expected to maintain provisions against potential credit losses on their books in Bahrain. Head offices of banks that do not wish to maintain provisions on books of their branch(es) in Bahrain must advise the CBB, on an annual basis and in writing, of the amount of provisions set aside for the bad debts of Bahrain branch(es).

        Amended: April 2014
        Amended: July 2011
        Amended: January 2011
        October 2007

      • CM-A.2.2

        The CBB requires all Bahraini Islamic bank licensees to set out their policy on large exposures, including limits for differing types of exposures to individual customers, banks, corporates, countries and economic and market sectors, in a policy statement which must be formally approved by the Board of Directors (see Section CM-4.7).

        Amended: April 2014
        Amended: July 2011
        Amended: January 2011
        October 2007

      • CM-A.2.2A

        The CBB requires that any large exposure, as defined in Paragraph CM-4.4.1, must be priorly approved by the bank's Board of Directors (see Paragraph CM-4.4.3A).

        Added: January 2017

      • CM-A.2.3

        The aggregate of large exposures may not exceed 800% of the bank's consolidated Total Capital (see Paragraph CM-4.4.4). A bank may not incur a combined exposure (funded by unrestricted investment accounts and the bank's own funds) to an individual counterparty or group of closely related counterparties which exceeds 15% of the reporting bank's consolidated Total Capital (see Paragraph CM-4.4.5).

        Amended: January 2015
        Amended: April 2014
        October 07

      • CM-A.2.4

        The aggregate exposures to all connected counterparties when taken together, may not exceed the limit as stated in Paragraph CM-4.4.13 of consolidated Total Capital.

        Amended: January 2015
        Amended: April 2011
        October 2007

      • CM-A.2.5

        No Islamic financing provided by a bank to its own external auditors shall be permitted.

        October 07

      • CM-A.2.6

        All Bahraini Islamic bank licensees are required to report (for the attention of the Director of Islamic Financial Institutions Supervision Directorate) all large exposures, (whether exempt or not) on a quarterly basis using the Form PIR provided in Appendix BR-5 (see Section CM-4.6).

        Amended: April 2014
        Amended: October 2009
        October 2007

      • CM-A.2.7

        The CBB's prior written consent must be obtained for any credit facility to an employee where the amount of such facility, either singly or when added to an existing facility/existing facilities outstanding to that employee at that date, would be equal to or in excess of BD 100,000 (or its equivalent) (see Section CM-5.1).

        Amended: April 2014
        Amended: July 2011
        Amended: January 2011
        October 2007

      • CM-A.2.8

        The CBB requires that banks only provide a new consumer facility (or renew, extend or otherwise modify an existing consumer facility) for an amount such that the counterparty's total monthly repayments on all his consumer finance commitments do not exceed 50% of his monthly gross income (see Section CM-7.4).

        Amended: April 2014
        Amended: July 2011
        October 2007

      • CM-A.2.9

        [This Paragraph was deleted in April 2014 as this requirement has been moved to Module BC.]

        Deleted: April 2014

      • CM-A.2.10

        The CBB's prior written consent must be obtained before writing off any credit facility provided to senior employee/officer/Director of the reporting bank or other bank(s) who fails to discharge his/her repayment obligations to the reporting bank (See Section CM-7.1 for details).

        Amended: July 2011
        Amended: January 2011
        October 2007

      • CM-A.2.11

        All Bahraini Islamic bank licensees must notify the CBB of any write-off of a credit facility, (i.e. Murabaha or any other credit facility) of an amount in excess of BD 100,000 (or its equivalent). Chapter CM-6 contains Rules relating to the write-off of credit facilities.

        Amended: April 2014
        Amended: January 2013
        Amended: July 2011
        Amended: January 2011
        October 2007

      • CM-A.2.12

        All banks which provide credit to residents of Bahrain must become members of the Credit Reference bureau and follow the CRB Code of Practice (see Paragraph CM-1.2.4).

        Amended: April 2014
        October 07

      • CM-A.2.13

        All banks are required to follow the CBB’s requirements concerning refund of insurance on financing prepayments and top-ups and early repayment fees/charges as outlined in Section CM-7.6.

        Added: April 2008

    • CM-A.3 CM-A.3 Module History

      • CM-A.3.1

        This Module was first issued on 1st January 2005 as part of the Islamic principles volume. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made: Chapter UG 3 provides further details on Rulebook maintenance and version control.

        October 07

      • CM-A.3.2

        A list of most recent changes made to this Module are detailed in the table below:

        Summary of Changes

        Module Ref. Change Date Description of Changes
        CM-2.2 1/10/05 Role of Internal audit becomes a rule
        CM-7.4 1/10/05 Clarification re non-compliant facilities
        CM-A.1 10/2007 New Rule CA-A.1.4 introduced, categorising this Module as a Directive.
        CM-7 10/2007 New Requirement to follow the "Code of best Practice on Consumer Credit and Charging
        CM-1.2 10/2007 Membership of CRB
        CM-4.2 10/2007 Clarification of definition of exposure
        CM-8 10/2007 Re-organised the Chapter.
        CM-4.4 & 6.1 04/2008 New Limits for significant shareholders and guidance on write-offs
        CM-7.6 04/2008 New Insurance Refund and prepayment requirements
        CM-4.6 10/2009 New reporting arrangements for exposures of connected counterparties.
        CM-A.1.3 01/2011 Clarified legal basis.
        CM-4 01/2011 Changes made to incorporate CP-5 and large exposures requirements.
        CM-A.2.4 04/2011 Corrected cross reference in line with new limits introduced in January 2011.
        CM-4.2.1(c), CM-4.5.1 04/2011 Corrected cross reference.
        CM 07/2011 Various minor amendments to clarify Rules and have consistent language.
        CM-4.4.10 07/2011 Amended the definition of connected counterparties.
        CM-7.5.3 10/2011 Clarified reference to APR.
        CM-7.5.9 and CM-7.5.10 10/2011 Corrected elements of APR formula.
        CM-7.5.12 10/2011 Deleted Paragraph as it does not reflect current practice on residual interest.
        CM-4.4.1E 01/2012 Amended definition of qualifying holdings
        CM-4.5 01/2012 Clarified and amended the Rules on temporary exposures.
        CM-4.9.3 01/2012 Clarified the Rule on future increases in qualifying holdings.
        CM-7.4.9 01/2012 Changed Rule to Guidance.
        CM-4.5.2E and CM-4.5.2F 04/2012 Clarified Rule on temporary exposures.
        CM-A.2.9 07/2012 Updated reference to Bahrain Association of Banks.
        CM-4.4.7 07/2012 Clarified the definition of 'controlling interest'.
        CM-4.4.8A 07/2012 CBB prior approval required for excess over limits to connected counterparties.
        CM-4.4.10 07/2012 Minor corrections.
        CM-4.9.3 07/2012 Amendment made to be in line with updated definition of qualifying holdings.
        CM-7.5.4 07/2012 Minor typo corrected.
        CM-7.5 10/2012 This Section was deleted and requirements are now included in Section BC-4.2.
        CM-A.2.11 01/2013 Clarified Rule related to the write-off of a credit facility.
        CM-4.4.13A 07/2013 Clarified Rule on the amount that must be deducted from the capital base where exposure exceeds the limit stipulated.
        CM-7.6.2 07/2013 Clarified the type of mortgages on which the CBB imposes a ceiling on early repayment fees and/or charges.
        CM-1.2.4 10/2013 Amended to reflect the expanded scope of activities of the Credit Reference Bureau and the membership requirements.
        CM-7.4.4 10/2013 Updated reference to Eskan Bank to reflect new name.
        CM-1.2.4 01/2014 Clarified Rule to apply to credit facilities to residents in Bahrain.
        CM-A.2, CM-4 and CM-8.1.19 04/2014 Added cross references and corrected terminology to link to Glossary items.
        CM-5.1.1A 04/2014 Clarified Rules on staff loans.
        CM-7.2.4 04/2014 Reference updated for the code of best practice on consumer credit and charging.
        CM-4.9.2A 07/2014 Added a guidance Paragraph to clarify the treatment of investments in commercial entities which are otherwise not connected to the bank.
        CM-A.2 and CM-4 01/2015 Corrected to be aligned with updated requirements under module CA.
        CM-4.4.2 01/2015 Added reference to transactions subject to the regulation on close-out netting under a market contract.
        CM-4.4.1B 01/2015 Corrected cross reference.
        CM-4.4.1E 04/2015 Deleted cross reference as not applicable.
        CM-4.4.13 04/2015 Clarified that RIAs are excluded.
        CM-4.4.5, CM-4.5.2B, CM-4.5.9 and CM-4.9.10 04/2015 Corrected reference to consolidated Total Capital to be in line with Module CA.
        CM-4.6.1 04/2015 Added reference to Appendix BR-19 for reporting the financial details of each large exposure.
        CM-4.9.3 04/2015 Clarified language on the treatment of significant investments over the thresholds outlined in Paragraph CA-2.4.25.
        CM-4.6.1, CM-4.6.1A and CM-4.6.1B 07/2015 Clarified the reporting requirements of exposures.
        CM-6.1 10/2015 Amended Rules on write-offs.
        CM-4.4.1E 10/2016 Amended definition of 'Major investments'.
        CM-4.9 10/2016 Amended 'Acquisitions' to be 'Investments'
        CM-4.9.3 10/2016 Amended Major Investments approval
        CM-4.9.4 10/2016 Changed 'major acquisition' to 'major investment'.
        CM-4.9.5 10/2016 Changed 'significant investment' to 'major investment'
        CM-4.9.6 10/2016 Moved to new section CM-4.10
        CM-4.9.7 10/2016 Moved to new section CM-4.10
        CM-4.9.8 10/2016 Moved to new section CM-4.10
        CM-4.9.10 10/2016 Changed 'acquisitions' to 'major investments'.
        CM-4.10 10/2016 New Section — 'Limits on Significant Investments'
        CM-6.1 10/2016 Amended the 'Write-offs' Section
        CM-7.4.5 10/2016 Amendments to clarify the Rule
        CM-A.2.2A
        CM-4.4.3A
        01/2017 Added a new requirement on Large Exposures.
        CM-4.4.6A
        CM-4.4.10B
        01/2017 Added Paragraphs on closely related counterparties and connected counterparties.
        CM-3.6 07/2017 Added new Section on 'Country and Transfer Risks'.
        CM-7.6.2 04/2018 Deleted Paragraph on "Early Repayment Fees/Charges".
        CM-7.4.10 10/2019 Amended Paragraph on non-compliant facilities.
        CM-4.5.2D 01/2020 Amended Paragraph on approval of the banks policies and procedures.
        CM-1.2.6 07/2020 Added a new Paragraph on CRB members requirements.
        CM-1.2.7 07/2020 Added a new Paragraph on compliance with CBB Law.
        CM-7.4.10 07/2021 Amended submission of technically non-compliant facilities report.

      • Evolution of the Module

        • CM-A.3.3

          Prior to the development of this Rulebook, the CBB had issued various circulars representing regulations covering different aspects of credit risk management. These circulars and their evolution into this Module are listed below:

          Circular Ref. Date of Issue Module Ref. Circular Subject
          BC/3/98 21 Feb 1998 CM-B.2 Basel Committee on Banking Supervision Framework for the Evaluation of Internal Controls Systems
          BC/117/95 (partial) 1 Feb 1995 CM-1 - CM-3 Risk Management
          OG/127/01 18 Mar 2001 CM-2 Developing a Sound Credit Culture
          OGD/27/88 9 Feb 1988 CM-3.4 Provisions Against Country Debt
          PIRI Pack - - - - - CM-4 Prudential Information Returns for Islamic Financial Institutions
          EDBC/178/96 5 Oct 1996 CM-5 Islamic Facilities
          OG/45/88 13 Mar 1988 CM-6.1 Write-Off - Credit Facility
          OG/50/92 (partial) 4 Mar 1992 CM-07.1 - CM-7.2 Consumer Finance
          PIRI Pack - - - - - CM-8 Prudential Regulations for Islamic Financial Institutions
          EDBC/105/96 26 June 1996 CM-8.3 Mudaraba Contracts - Minimum Terms and Conditions
          BC/4/99 17 Mar 1999 CM-9.1 Annual Accounts for the Year Ending 31 December 1999
          Amended: January 2011
          October 2007

      • Effective Date

        • CM-A.3.4

          The contents in this Module are effective from the date depicted in the original circulars (see Paragraph CM-A-3.3) or the dates given in the summary of changes above.

          October 07