CM-4.4.1

A 'large exposure' is any exposure whether direct or indirect to a counterparty or a group of closely related counterparties which is greater than, or equal to, 10% of the reporting bank's consolidated Total Capital.

CM-4.4.1A

'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 as capital 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 a capital instrument at onset.

CM-4.4.1B

'Acquisition' means the acquiring by a bank of beneficial or legal ownership of capital 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 of capital instruments pledged as collateral. The pledging of capital 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 new subsidiaries by the bank. Regulatory requirements for the establishment of SPVs and subsidiaries are contained in Section BR-5-2.

CM-4.4.1C

'Investment' is any holding by a bank of capital 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 of capital instruments.

CM-4.4.1D

A bank has "close links" with:

CM-4.4.1E

A "major investment" is defined as any acquisition or investment in the capital instruments of another entity by a Bahraini Islamic bank licensee which is equivalent to or more than 10% of the Bahraini Islamic bank licensees consolidated total capital.

CM-4.4.1F

[This Paragraph was deleted in January 2015.]

CM-4.4.2

Total Capital has the same meaning as when used in Section CA-1.1.

CM-4.4.3

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-4.10),whether funded or not funded, i.e. contingent commitments.

CM-4.4.3A

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.

CM-4.4.4

[This Paragraph was deleted in January 2015.]

CM-4.4.5

A bank may not incur an exposure to an individual counterparty or group of closely related counterparties (not connected to the reporting bank) which exceeds the limit below, in respect 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%. The following single exposure limit applies:

Direct exposures (i.e. funded, unfunded on and off balance sheet): A bank may not incur an exposure to an individual counterparty or group of closely related counterparties which exceeds 15% of the reporting bank's consolidated Total Capital without the prior written approval of the CBB. For this purpose, companies/banks with variable capital should not include participation shares in calculating their consolidated Total Capital, since there are governed by Mudaraba contract (profit sharing).

CM-4.4.6

'Closely related counterparties' are two or more counterparties 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), or counterparties 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.

CM-4.4.6A

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.

CM-4.4.7

'Controlling interest' means either significant ownership (i.e. ownership of 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.

CM-4.4.8

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 large exposures policy statement agreed with the CBB.

CM-4.4.8A

A bank may not exceed the individual or aggregate connected counterparty limits shown in Paragraph CM-4.4.13 without the prior written approval of the CBB.

CM-4.4.9

A bank may not undertake exposures to its own external auditors. In this context, 'external auditors' refers to the firm/partnership, the partners, the directors and managers of the audit firm.

CM-4.4.9A

Any on-balance sheet utilisation of existing/outstanding restricted investment accounts (RIAs) or any movement of funds between RIAs is not permitted unless specifically permitted under a valid contract between the bank and the relevant customer.

CM-4.4.10

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 of controlled 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.

CM-4.4.10A

Equity participations in and credit exposures to consolidated banking and financial subsidiaries (see CM-4.2.1(c)) need not be included in exposures to connected counterparties for the sake of the table in CM-4.4.13. 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.

CM-4.4.10B

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.

CM-4.4.11

Lending to senior management is covered under Chapter CM-5. All credit facilities to senior management are included under the limits given in the table under Paragraph CM-4.4.13.

CM-4.4.12

Banks must not undertake exposures to controllers as defined in Chapter GR-5 or to subsidiaries of such (i.e. there is a 0% limit for such exposures), however smaller shareholders will be subject to the normal exposure limits outlined in CM-4.4.5. Directors who are also controllers (or the appointed board representatives of such controllers) are subject to the 0% limit.

CM-4.4.13

The limits for connected counterparties have been set as follows:

Exposures funded on and off balance sheet (excluding RIAs) as a percentage of consolidated Total Capital

CM-4.4.13A

Where limits mentioned under Paragraphs CM-4.4.5 and CM-4.4.13 have been exceeded whether with or without the prior approval of the CBB (see Paragraph CM-4.4.8A), the excess amount must be risk-weighted at 800%.

CM-4.4.14

The CBB will closely examine all exposures to companies or persons connected to a bank and will deduct them from the bank's consolidated Total Capital if they are, in the CBB's opinion, of the nature of a capital investment, or provision of long-term working capital, or are made on particularly concessionary terms.

CM-4.4.15

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 to acquisitions or takeovers must be deducted from the concerned bank's Total Capital (see also CA-2.4.15).

CM-4.4.16

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.