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  • PD-1.3 PD-1.3 Disclosures in the Annual Report for Bahraini Islamic Banks

    • Introduction

      • PD-1.3.1

        Banks (referred to under Paragraph PD-1.2.6 — hereafter referred to as "banks") should provide timely information which facilitates market participants' assessment of them. The disclosure requirements set out in this Section must be included in the Annual Report either as an Appendix or in the notes to the Audited Financial Statements at the discretion of the concerned bank. The disclosures should be addressed in clear terms and with appropriate details to help achieve a satisfactory level of bank transparency.

        Amended: July 2017
        April 2008

      • PD-1.3.2

        The disclosure requirements listed in Paragraphs PD-1.3.4 to PD-1.3.31 below follow the requirements of Basel II Pillar 3 and are in addition to, or in some cases, serve to clarify the disclosure requirements of AAOIFI and/or IFRS as appropriate.

        Amended: April 2016
        Amended October 2010
        April 2008

      • PD-1.3.3

        If a bank is not able to achieve full compliance with the requirements stated in this Chapter, a meeting should be held with the Director of Islamic Financial Institutions Directorate at the CBB in the presence of the concerned external auditor to discuss the reasons for such non-compliance prior to the finalisation of the annual report. It is the responsibility of the bank to call for such meetings.

        Amended October 2010
        April 2008

    • Investment Accounts

      • PD-1.3.4

        Restricted investment accounts are to be reported off-balance sheet in the financial statements.

        April 2008

      • PD-1.3.5

        Unrestricted investment accounts are to be reported on-balance sheet in the financial statements.

        April 2008

    • Scope of Application — Qualitative Disclosures

      • PD-1.3.6

        The following information must be disclosed in relation to the parent bank (in Bahrain) and its banking and financial institution subsidiaries:

        (a) The full legal name of the top corporate entity in the group to which the disclosure requirements apply;
        (b) [This Subparagraph was deleted in April 2016 and replaced with Paragraph PD-1.3.14]; and
        (c) Any restrictions on the transfer of funds or regulatory capital within the group (e.g. large exposure or exchange control regulations or covenants over the repayment of capital or the payment of dividends).
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Scope of Application — Quantitative Disclosures

      • PD-1.3.7

        The aggregate amounts (current book value) of the bank's total interests in insurance entities, which are risk-weighted rather than deducted from capital or subjected to an alternate group-wide methodology, as well as their name, their country of incorporation or residence, and the proportion of voting power in these entities must be disclosed (in relation to the parent bank). In addition, banks must disclose the quantitative impact on regulatory capital of using this method versus the deduction or alternate group-wide method.

        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

      • PD-1.3.8

        [This Paragraph was deleted in April 2016].

        Deleted: April 2016
        Amended October 2010
        April 2008

    • Financial Performance and Position

      • PD-1.3.9

        The following information relating to the financial performance and position of the bank should be included:

        (a) Discussion of the main factors that influenced the bank's financial performance for the year, explaining any differences in performance between the current year and previous years and the reasons for such differences, and discussing factors that will have a significant influence on the bank's future financial performance;
        (b) Basic quantitative indicators of financial performance including, but not restricted to, ROAE, ROAA, cost-to-income ratios etc. for the past 5 years;
        (c) A discussion of the impact of acquisitions of new businesses and discontinued business and unusual items; and
        (d) A discussion of the impact of changes in the capital structure and their possible impact on earnings and dividends.
        Amended April 2011
        April 2008

    • Corporate Governance and Transparency

      • PD-1.3.10

        The following information relating to corporate governance must be disclosed in the annual report:

        (a) Information about the Board structure (e.g. the size of the Board, Board committees, function of committees and membership showing executive, non-executive and independent members, number and names of independent board members), and the basic organisational structure (lines of business structure and legal entity structure);
        (b) Information about the profession, business title, and experience in years of each Board member and the qualifications and experience in years of all senior managers;
        (c) Descriptive information on the managerial structure, including:
        (i) Committees (see below for detailed disclosure requirements relating to various types of committees);
        (ii) Segregation of duties;
        (iii) Reporting lines; and
        (iv) Responsibilities;
        (d) Descriptive information on the performance-linked incentive structure for approved persons (including but not limited to remuneration policies, executive compensation and stock options);
        (e) Nature and extent of transactions with related parties (as defined by AAOIFI and IFRS as appropriate see also PD-1.3.23(d));
        (f) Approval process for related party transactions;
        (g) Information about any changes in the structures (as mentioned in Subparagraphs PD-1.3.10(a) to PD-1.3.10(c) above) from prior periods;
        (h) The communications strategy approved by the Board (including the use of the bank's website) which should perform at least the following:
        (i) The disclosure of all relevant information to stakeholders on a timely basis in a timely manner; and
        (ii) The provision of at least the last three years of financial data on the bank's website;
        (i) Distribution of ownership of shares by nationality;
        (j) Directors' and senior managers' trading of the bank's shares during the year, on an individual basis;
        (k) Distribution of ownership of shares by directors and senior managers, on an individual basis;
        (l) Distribution of ownership of shares by size of shareholder;
        (m) Ownership of shares by government;
        (n) The Board's functions — rather than a general statement (which could be disclosed simply as the Board's legal obligations under various laws) the 'mandate' of the Board should be set out;
        (o) The types of material transactions that require Board approval;
        (p) [This Subparagraph was deleted in April 2016 and requirements are now included in Subparagraph (a)];
        (q) Board terms and start date for each term for each director;
        (r) What the board does to induct, educate and orient new directors;
        (s) Election system of directors and any termination arrangements;
        (t) [This Subparagraph was deleted in April 2016 and requirements moved to Subparagraph (w)];
        (u) [This Subparagraph was deleted in April 2016 and requirements moved to Subparagraph (w)];
        (v) Whether the board has adopted a written code of ethical business conduct, and if so the text of that code and a statement of how the board monitors compliance;
        (w) Minimum number of Board committee meetings compared with the actual dates and number of board and committee meetings, individual attendance of each director and the work of committees and any significant issues arising during the period;
        (x) [This Subparagraph was deleted in April 2013];
        (y) Review of internal control processes and procedures;
        (z) Directors responsibility with regard to the preparation of financial statements;
        (aa) Board of Directors — whether or not the board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution;
        (bb) Bahraini Islamic bank licensees must maintain a website. Overseas Islamic retail bank licensees must provide a link on their website in Bahrain to the website of their parent bank;
        (cc) Descriptive information on any investor/ consumer awareness programmes for information on new products and services;
        (dd) Information on any mediation and advice bureaus for investors and customers set up by the bank, including clearly written procedures for logging of complaints;
        (ee) Social functions and charitable contributions of the bank;
        (ff) Descriptive information on the governance arrangements, systems and controls employed by the bank to ensure Shari'a compliance and on how these meet applicable AAOIFI standards, and if there is less than full compliance, an explanation of the reasons for non-compliance;
        (gg) How non-Shari'a-compliant earnings and expenditure occur and the manner in which they are disposed of; and
        (hh) The annual zakah contributions of the bank, where relevant;
        (ii) Aggregate remuneration paid to board members;
        (jj) Key features and objectives of the remuneration policy of the bank for board members, Shari'a Board and senior management as well as the frequency of review of the remuneration structure and the extent to which the policy is applicable to foreign subsidiaries and branches; and
        (kk) Aggregate remuneration paid to senior management.
        Amended: April 2023
        Amended: April 2016
        Amended: January 2014
        Amended: October 2012
        Amended: July 2012
        Amended April 2012
        Amended January 2012
        Amended April 2011
        Amended October 2010
        April 2008

      • PD-1.3.10A

        With regards to corporate governance, banks are subject to additional disclosure requirements on corporate governance, whereby such disclosures are for the benefit of shareholders (See Chapter PD-6)

        Amended: April 2016
        October 2010

    • Additional Disclosure Requirements Pertaining to Remuneration

      • PD-1.3.10B

        In addition to the remuneration related disclosure included under Paragraph PD-1.3.10, the following qualitative and quantitative information pertaining to remuneration practices and policies covering the following areas must be disclosed in the annual report:

        (a) The name, composition and mandate of the main body overseeing remuneration;
        (b) Whether external consultants' advice has been sought and by whom in the bank and in what areas of the remuneration process the consultants have been involved;
        (c) The independence of remuneration for staff in risk management, internal audit, operations, financial controls, AML, internal shari'a review/audit and compliance functions;
        (d) The risk adjustment methodologies;
        (e) The link between remuneration and performance;
        (f) The long-term performance measures (deferral, malus, clawback);
        (g) The types of remuneration (cash/equity, fixed/variable);
        (h) Whether the remuneration committee reviewed the bank's remuneration policy during the past year, and if so, an overview of any changes that were made;
        (i) A discussion of how the bank ensures that approved persons engaged in risk management, internal audit, operations, financial controls, AML, internal shari'a review/audit and compliance functions are remunerated independently of the business units they oversee;
        (j) Description of the ways in which the current and future risks are taken into account in the remuneration processes. Disclosures must include:
        (i) An overview of the key risks that the bank takes into account when implementing remuneration measures;
        (ii) An overview of the nature and type of the key measures used to take account of these risks, including risks difficult to measure;
        (iii) A discussion on the ways in which these measures affect remuneration; and
        (iv) A discussion of how the nature and type of these measures have changed over the past year and reasons for the change, as well as the impact of changes on remuneration;
        (k) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration. Disclosures must include:
        (i) An overview of main performance metrics for bank, top-level business lines and individuals;
        (ii) A discussion of how amounts of individual remuneration are linked to bank-wide and individual performance; and
        (iii) A discussion of the measures the bank will in general implement to adjust remuneration in the event that performance metrics are weak1;
        (l) Description of the ways in which the bank seeks to adjust remuneration to take account of longer term performance. Disclosures must include:
        (i) A discussion of the bank's policy on deferral and vesting of variable remuneration and, if the fraction of variable remuneration that is deferred differs across employees or groups of employees, a description of the factors that determine the fraction and their relative importance; and
        (ii) A discussion of the bank's policy and criteria for adjusting deferred remuneration before vesting and after vesting through clawback arrangements;
        (m) Description of the different forms of variable remuneration that the bank utilises and the rationale for using these different forms. Disclosures must include:
        (i) An overview of the forms of variable remuneration offered (i.e. cash, shares and share-linked instruments and other forms2); and
        (ii) A discussion of the use of the different forms of variable remuneration and, if the mix of different forms of variable remuneration differs across employees or group of employees, a description of the factors that determine the mix and their relative importance;
        (n) Number of meetings held by the main body overseeing remuneration during the financial year and aggregate remuneration paid to its members;
        (o) Number and total amount of remuneration for approved persons and material risk takers for the financial year split into fixed and variable remuneration;
        (p) Number and total amount of variable remuneration awarded during the financial year, split into cash, shares and share-linked instruments and other;
        (q) Number and total amount of guaranteed bonuses awarded during the financial year;
        (r) Number and total amount of sign-on awards made during the financial year;
        (s) Number and total amount of severance payments made during the financial year, and highest such award to a single person;
        (t) Total amount of outstanding deferred remuneration, split into cash, shares and share-linked instruments and other forms; and
        (u) Total amount of deferred remuneration awarded during the financial year, paid out and reduced through performance adjustments.

        1 This should include the bank's criteria for determining weak performance metrics.

        2 A description of the elements corresponding to other forms of variable remuneration must be provided.

        Amended: April 2016
        Amended: April 2015
        Amended: July 2014
        Added: January 2014

      • PD-1.3.10C

        The disclosure of remuneration practices must cover approved persons and material risk-takers and must be broken down as follows:

        (a) Members of the board of directors;
        (b) Approved persons in business lines;
        (c) Approved persons in risk management, internal audit, operations, financial controls, internal Shari'a review/audit, AML and compliance functions; and
        (d) Material risk-takers not falling under categories (a) to (c).
        Amended: July 2014
        Added: January 2014

      • PD-1.3.10D

        Disclosure requirements for items under Subparagraph PD-1.3.10B (n) to (u) must be provided for the current as well as for the previous financial year.

        Added: January 2014

      • PD-1.3.10E

        Disclosure requirements for items under Subparagraph PD-1.3.10B (o) and (p) may be presented in a table format split between members of the Board and other approved persons, as well as material risk-takers.

        Added: January 2014

      • PD-1.3.10F

        For purposes of Paragraph PD-1.3.10E, the table referred to should be completed separately for:

        (a) Members of the board of directors;

        Total value of remuneration awards
        for the current fiscal year                 		Unrestricted
        Fixed remuneration  
            •   Sitting Fees X
            •   Other (please specify) X
        (b) Approved persons in business lines;
        (c) Approved persons in risk management, internal audit, operation, financial controls, internal Shari'a review/audit, AML and compliance functions; and
        (d) Material risk-takers not falling under categories (a) to (c).

        Total value of remuneration awards
        for the current fiscal year                 		Unrestricted Deferred
        Fixed remuneration
            •   Cash-based X X
            •   Shares and share-linked instruments X X
            •   Other X X
        Variable remuneration
            •   Cash-based X X
            •   Shares and share-linked instruments X X
            •   Other X X

        Amended: July 2014
        Added: January 2014

      • PD-1.3.10G

        In instances where a bank has no approved persons or material risk-takers whose remuneration is in excess of BD100,000 as per Paragraph HC-5.4.2, the disclosure requirements under Subparagraphs PD-1.3.10B(f), (g), (l), (m), (t) and (u) are not required.

        Amended: July 2014
        Added: January 2014

    • Capital Structure — Qualitative Disclosures

      • PD-1.3.11

        All banks must disclose on their website summary descriptive information on the types, forms, terms and conditions of the main features of all capital- and equity-related instruments and unrestricted investment accounts listed below in PD-1.3.12, PD-1.3.13 and PD-1.3.15, especially in the case of innovative, complex or hybrid capital instruments. Full details of the required disclosures are given in Appendix PD-3.

        Amended: April 2016
        April 2008

    • Capital Structure — Quantitative Disclosures

      • PD-1.3.12

        From 31st December 2016 until 31st December 2018, all banks must disclose with separate disclosures of individual items as detailed in Appendix PD-4 the following items:

        (a) The amount of Tier One Capital;
        (b) The amount of Tier Two Capital; and
        (c) Required capital ratios and buffers.
        Amended: April 2016
        Amended April 2011
        April 2008

      • PD-1.3.13

        From 1st January 2019, the disclosures referred to under Paragraph PD-1.3.12, must be made in accordance with Appendix PD-1.

        Amended: April 2016
        Amended April 2011
        April 2008

      • PD-1.3.14

        From 31st December 2016, all banks must disclose a full reconciliation of all regulatory capital elements back to the balance sheet in the audited financial statements as required under Appendix PD-2.

        Amended: April 2016
        Amended October 2010
        April 2008

      • PD-1.3.15

        [This Paragraph was deleted in April 2016.]

        Deleted: April 2016
        April 2008

    • Capital Adequacy

      • PD-1.3.16

        All banks must present a summary discussion of the bank's approach to assessing the adequacy of capital to support current and future activities both on a risk-based capital basis (i.e. as in Chapters CA-1 and CA-2). All banks must also disclose a description of the policy on identifying assets suitable for funding by unrestricted investment accounts.

        Amended: April 2016
        April 2008

      • PD-1.3.17

        All banks must disclose the regulatory capital requirements for credit risk by each type of Islamic financing contract and for securitisation exposures (usually sukuk).

        Amended: April 2016
        April 2008

      • PD-1.3.18

        All banks must disclose their capital requirements for market risk using the standardised approach.

        Amended: April 2016
        April 2008

      • PD-1.3.19

        All banks must disclose their capital requirements for operational risk under:

        (a) The basic indicator approach; or
        (b) The standardised approach (as applicable).
        Amended: April 2016
        Amended April 2011
        April 2008

      • PD-1.3.20

        All banks must disclose their total and Tier One Capital Ratios on the following basis:

        (a) For the top consolidated group in Bahrain; and
        (b) For all significant bank subsidiaries (whose regulatory capital amounts to over 5% of group consolidated regulatory capital whether on a stand-alone or sub-consolidated basis).
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Risk: General Qualitative Disclosure Requirements

      • PD-1.3.21

        All banks must describe their risk management objectives and policies for each separate risk area below and provide information on whether or not strategies used have been effective throughout the reporting period. The strategies, processes and internal controls (including internal audit) must be described for each area below along with the structure and organisation of the relevant risk management function, and the scope and nature of risk reporting systems and policies for hedging/mitigating risk and strategies for monitoring the continuing effectiveness of hedges/mitigants. There are also certain specific disclosures for each of these areas in addition to the general qualitative disclosures required by this paragraph.

        (a) Credit Risk (see also PD-1.3.22 — PD-1.3.24);
        (b) Market Risk (see also PD-1.3.27);
        (c) Operational Risk (see also PD-1.3.28 — PD-1.3.30);
        (d) Equity Risk in the Banking Book (see also PD-1.3.31);
        (e) Rate of Return Risk (see also PD-1.3.39 — PD-1.3.40); and
        (f) Displaced Commercial Risk (see also PD-1.3.41).
        Amended April 2011
        Amended October 2010
        April 2008

    • Credit Risk — Qualitative Disclosures

      • PD-1.3.22

        All banks must make the general qualitative disclosures outlined in PD-1.3.21 above, as well as those below:

        (a) Definition of past due and impaired Islamic financing contracts;
        (b) Description of the approaches for specific and general impairment provisions and the associated statistical methods used (where applicable);
        (c) The name of External Credit Assessment Institutions (ECAIs) used for assigning risk weights to assets;
        (d) The types of exposure for which each ECAI is used; and
        (e) The process used to transfer ECAI public issue ratings onto comparable (financing) assets in the banking book.
        Amended April 2011
        Amended October 2010
        April 2008

    • Credit Risk — Quantitative Disclosures

      • PD-1.3.23

        All banks must disclose the following, giving, where applicable, the percentages funded by the banks own capital and current accounts, and by Profit Sharing Investment Accounts (PSIA) respectively:

        (a) Total gross credit exposures (gross outstanding before any risk mitigation) plus average gross exposures over the period broken down by major types of credit exposure (as outlined under IFRS) into funded and unfunded exposures. Where the period end position is representative of the risk positions of the bank during the period, average gross exposures need not be disclosed. Banks must state that average gross exposures have not been disclosed for this reason. Where average amounts are disclosed in accordance with an accounting standard or other requirement which specifies the calculation method to be used, that method should be followed. Otherwise, the average exposures should be calculated using the most frequent interval that an entity's systems generate for management, regulatory or other reasons, provided that the resulting averages are representative of the licensed bank's operations. The basis used for calculating averages needs to be stated;
        (b) Geographic distribution of exposures, broken down into significant areas by major types of credit exposure. Geographical areas may be individual countries, or groups of countries. Banks may define the geographical area according to how they manage the concerned areas internally. The criteria used to allocate exposures to particular geographical areas should be specified;
        (c) Distribution of exposures by industry or counterparty type, broken down by major types of credit exposure, broken down by funded and unfunded exposure;
        (d) Intra-group transactions including exposures to related parties as required by accounting standards (relevant AAOIFI or IFRS), and whether such transactions have been made on an arm's length basis;
        (e) Credit or financing facilities to highly leveraged and other high risk counterparties (as defined in PD-1.3.24) must be separately disclosed as an individual category;
        (f) Banks must disclose concentrations of risk to individual counterparties where the exposure is in excess of the 15% individual obligor limit. These do not require the disclosure of the name of the counterparty;
        (g) Residual contractual maturity breakdown (see PD-1.3.24(a) of the whole portfolio, broken down by major types of credit exposure;
        (h) By major industry or counterparty type:
        (i) Amount of non-performing and impaired Islamic financing contracts and past due Islamic financing contracts (see PD-1.3.24);
        (ii) Amount and changes in specific and collective impairment provisions during the financial year (see PD-1.3.24);
        (iii) Charges for specific provisions and charge-offs (write-offs) during the period; and
        (iv) Reconciliation of changes in provisions for Islamic financing contracts impairment.
        (i) Amount of past due Islamic financing contracts, provided separately broken down by significant geographic areas including the amounts of specific and collective impairment provisions related to each geographical area (see PD-1.3.24 for definition of geographical area);
        (j) Aggregate quantitative information about all outstanding Islamic financing contracts at year end not included in (h) above that have been restructured (according to the PIR instructions) during the period including:
        (i) The balance of any restructured Islamic financing contracts;
        (ii) The magnitude of any restructuring activity;
        (iii) The impact of restructured Islamic financing contracts on provisions and present and future earnings; and
        (iv) The basic nature of concessions on all credit relationships that are restructured.
        If full repayment is expected, the restructured credit need not be disclosed in this section after satisfactory performance for a period of six months in accordance with the modified terms;
        (k) Quantitative information concerning obligations with respect to recourse transactions (i.e. where the asset has been sold, but the bank retains responsibility for repayment if the original counterparty defaults or fails to fulfil obligations). Information must include the amount of assets sold and any expected losses; and
        (l) Any penalties imposed on customers for default and the disposition of any monies received as penalties.
        Amended: April 2016
        Amended October 2011
        Amended April 2011
        Amended October 2010
        April 2008

      • PD-1.3.24

        For Paragraph PD-1.3.23, the following notes are provided:

        (a) Banks must follow the residual maturity groupings currently followed under IFRS 7 (Guidance Note B 11 & B 12), but they must also extend the periods to include 5-10 years, 10-20 years, and 20 years and over (where the banks have exposures or liabilities of such maturity);
        (b) In PD-1.3.23(h), banks must provide an ageing of past due, non-performing or impaired Islamic financing contracts on the following basis:
        (i) Ageing schedule (over 3 months, over 1 year and over 3 years) of past due Islamic financing contracts and other assets; and
        (ii) Breakdown by relevant counterparty type or major industry;
        (c) For specific, collective, general and other impairment provisions, the portion of provisions not allocated to specific geographical areas should be shown separately;
        (d) The reconciliation of changes in provisions should show such provisions separately;
        (e) "Highly leveraged and other high risk counterparties" follow the categorisation given in the Basel Committee Paper of March 2001, entitled "Review of issues relating to Highly Leveraged Institutions (HLIs)" which described HLIs as having the following characteristics:
        (i) They are subject to little or no regulatory oversight;
        (ii) They are generally subject to very limited disclosure requirements and are not subject to rating by credit reference agencies; and
        (iii) HLIs often take on significant leverage, where leverage is the ratio between risk, expressed in some common denominator, and capital.
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Credit Risk Mitigation: Disclosure Requirements

      • PD-1.3.25

        (a) For Credit Risk Mitigation, banks must make the qualitative disclosures of PD-1.3.21 and PD-1.3.22, and also the following disclosures (with regard to credit risk mitigation):
        (i) Policies and processes for, and an indication of the extent to which the bank makes use of on- and off-balance sheet netting, if at all;
        (ii) Policies and processes for collateral valuation and management;
        (iii) A description of the main types of collateral or other Shari'a Compliant risk mitigation techniques employed by the bank;
        (iv) The main types of guarantor and their credit worthiness;
        (v) Information about (market or credit) risk concentrations within the credit risk mitigation taken;
        (vi) Policies and the carrying amounts for assets owned and leased under Ijarah Muntahia Bittamleek;
        (vii) Where a third party guarantee is taken as a risk mitigant, the risk weight applicable to the guarantor should be disclosed and the Shari'a compliance of the guarantee confirmed; and
        (viii) The nature and carrying amount of any assets held by the bank as collateral (including any haircuts) and the terms and conditions relating to the pledges. When the assets are not readily convertible into cash by the bank, the policies for disposing of the assets, or for using them in the bank's operations, should be disclosed;
        (b) All Bahraini Islamic bank licensees must disclose by type of Islamic financing contract , the total exposure (after on- or off-balance sheet netting, where applicable) that is covered by eligible collateral after the application of haircuts; and
        (c) All Bahraini Islamic bank licensees must disclose the total exposure (after on- or off-balance sheet netting where applicable) that is covered by guarantees by type of Islamic financing contract.
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Disclosures Related to Counterparty Credit Risk (CCR)

      • PD-1.3.26

        All Bahraini Islamic bank licensees must make the following disclosures regarding counterparty credit risk:

        (a) The general qualitative disclosures (PD-1.3.21 and PD-1.3.22) with respect to CCR including:
        (i) Discussion of methodology used to assign capital and credit limits for counterparty credit exposures;
        (ii) Discussion of policies for securing collateral and establishing credit provisions; and
        (iii) Discussion of the impact of the amount of collateral the bank would have to provide if given a credit rating downgrade; and
        (b) Gross positive fair value of contracts, netting benefits, netted current credit exposures and collateral held (including type: e.g. cash, government securities, etc.). Also measures for exposure at default. The distribution of current credit exposure by type of credit exposure (e.g. FX contracts, equity contracts, commodity contracts, etc.).
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Market Risk Disclosures for Banks

      • PD-1.3.27

        Banks must disclose the following items:

        (a) The general qualitative disclosure requirements for market risk (PD-1.3.21), identifying the concerned portfolios (special mention must be made of assets that do not have a ready market and/or which are exposed to high price volatility); and
        (b) The capital requirements for each category of the market risk items:
        (i) Equity position risk;
        (ii) Market risk on trading positions in sukuk;
        (iii) Foreign exchange risk (i.e. net open position); and
        (iv) Commodity risk (i.e. price risk).
        on an end period basis, as well as showing the maximum and minimum values during the period for each category of market risk shown above; and
        (c) The disclosures under Subparagraph PD-1.3.27 (b) must be followed by detailed quantitative information about the nature and extent of profit-rate sensitive assets and liabilities and off-balance sheet exposures (e.g. breakdown of fixed and floating rate items and the net profit rate margin earned, and the duration and effective profit rate of assets and liabilities). These disclosures should be by each portfolio identified in Subparagraph PD-1.3.27 (a), showing their related gains and losses. Also, the effect on the value of assets, liabilities and capital for a 200bp change in profit rates should be disclosed.
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Operational Risk Disclosures

      • PD-1.3.28

        All banks must disclose the general qualitative disclosures (PD-1.3.21) and also the approach(es) for operational risk which the bank employs to control such risk, and disclosures of any issues considered to be individually significant.

        Amended: April 2016
        April 2008

    • Operational Risk Qualitative Disclosures

      • PD-1.3.29

        The following additional qualitative disclosures (to Paragraph PD-1.3.21) should be made for operational risk:

        (a) Policies to incorporate operational risk measures into the management framework — for example budgeting, target-setting, and performance review and compliance;
        (b) Policies and processes:
        (i) To help track loss events and potential exposures;
        (ii) To report to these losses, indicators and scenarios on a regular basis; and
        (iii) To review the reports jointly by risk and line managers;
        (c) Policies on the loss mitigation process via contingency planning, business continuity planning, staff training and enhancement of internal controls, as well as business processes and infrastructures; and
        (d) A statement of how banks manage and control operational risks arising from pending legal actions.
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Operational Risk Quantitative Disclosures

      • PD-1.3.30

        The following quantitative disclosures should be made for operational risk:

        (a) The calculation of the capital charge or RWA equivalent for operational risk;
        (b) Indicators of operational risk exposures, such as:
        (i) Gross income;
        (ii) Amount of non-Shari'a-compliant income; and
        (iii) Number of Shari'a violations that were identified and reported during the financial year; and
        (c) Material legal contingencies including pending legal actions and a discussion and estimate of the potential liabilities.
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Disclosure Requirements for Equity Positions in the Banking Book

      • PD-1.3.31

        All banks must make the following disclosures for any equities held in the Banking Book:

        (a) The general qualitative disclosure requirement (PD-1.3.21) with respect to equity risk, including:
        (i) Differentiation between holdings on which capital gains are expected and those taken under other objectives including for relationship and strategic reasons; and
        (ii) Discussion of important policies covering the valuation and accounting of equity holdings in the banking book. This includes the accounting policies and valuation methodologies used, including key assumptions and practices affecting valuation as well as significant changes in these practices;
        (b) Total gross exposure and average gross exposure to equity-based financing structures by type of financing contract;
        (c) The types and nature of investments, including the amount that can be classified as quoted on an active market or privately held;
        (d) The cumulative realised gains (or losses) arising from sales or liquidations in the reporting period;
        (e) Total unrealised gains and losses recognised in the balance sheet but not through the P&L;
        (f) Any unrealised gains and losses included in Tier One and Tier Two capital; and
        (g) Capital requirements broken down by appropriate equity groupings, consistent with the methodology, as well as the aggregate amounts and type of equity investments subject to any supervisory transition or grandfathering provisions regarding regulatory capital requirement.
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Unrestricted Investment Accounts: Qualitative Disclosures

      • PD-1.3.32

        The following qualitative disclosures should be made when the concerned Islamic bank has unrestricted investment accounts:

        (a) Written procedures and policies applicable to the investment accounts, including a synopsis of the following:
        (i) General applicable investment objectives;
        (ii) Range of investment products available;
        (iii) Characteristics of investors for whom various investment accounts may be appropriate;
        (iv) Purchase, redemption and distribution procedures, including IAH's rights to withdraw funds during the term of the Mudarabah contract, and any penalties, such as forfeited shares of profits, that will be incurred by doing so;
        (v) Experience of portfolio managers, investment advisors and trustees;
        (vi) Governance arrangements for the IAH funds; and
        (vii) Strategy for trading and organization of assets.
        (b) Disclosure that IAH funds are invested and managed in accordance with Shari'a requirements;
        (c) Product information and the manner in which the products are made available to investors;
        (d) Basis and method of allocation of assets, expenses and profit in relation to IAH funds, including, with particular reference to unrestricted IAH, the co-mingling of their funds with other funds managed by the bank, the balance between shareholders' and IAH's interests in terms of allocating investment funds and the risk-return characteristics of investments;
        (e) Disclosures on the policies governing the management of IAH funds, which covers the approaches to the management of investment portfolio, establishment of prudential reserves, and the calculation, allocation and distribution of profits, including the extent of management's right to appropriate IAH's share of investment profit in order to build up PER and or IRR, to use these reserves to smooth profit payouts to IAH, the rules governing the transfer of funds to or from PER and IRR, including contractual or regulatory limits on management's discretion in the matter and the disposition of unused balances on these accounts at the end of the relevant Mudarabah contract;
        (f) The availability of "personal banking" and investment advisory and financial planning services for the benefit of IAH, and the degree of independence of such advisors in recommending products offered by other banks;
        (g) Complaints procedures available to dissatisfied IAH;
        (h) The extent of any sharing of profits from the bank's provision of fee-based banking;
        (i) The extent to which the bank is committed to paying a competitive rate of return by accepting DCR;
        (j) The major changes in the investment strategies that affect the investment accounts (including commingling of funds);
        (k) Bases applied for charging expenses to unrestricted IAH; and
        (l) Description of total administrative expenses charged to unrestricted IAH.
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Unrestricted Investment Accounts: Quantitative Disclosure Requirements

      • PD-1.3.33

        The following quantitative disclosures should be made when the concerned Islamic bank has unrestricted investment accounts:

        (a) Amount of IAH funds;
        (b) The ratio of Profit Equalization Reserves (PER) to the total amount of PSIA by type of IAH;
        (c) The ratio of Investment Risk Reserves (IRR) to the total of PSIA by type of IAH;
        (d) ROAA and ROAE;
        (e) Ratio of profit distributed to PSIA by type of IAH. The bank must disclose the profit sharing formula used for the calculation and distribution of profits;
        (f) The management fee (Mudarib share) as a percentage of the total investment profit, and the extent to which it is subject to partial or total waiver in order to pay a competitive rate of return to IAH;
        (g) Ratio of financing to PSIA by type of IAH;
        (h) Percentage of financing for each type of Shari'a-compliant contract to total financing;
        (i) Percentage of financing for each category of counterparty to total financing — that is, Amount of Shari'a-compliant financing extended to a category of counterparties (outstanding) / Amount of total financing (outstanding) x 100;
        (j) The carrying amount of any assets that the bank has pledged as collateral and the terms and conditions relating to the pledge;
        (k) The amount of any guarantees or pledges given by the bank and the conditions attaching to those guarantees or pledges;
        (l) Share of profits earned by IAH, before transfers to or from reserves (amount and as a percentage of funds invested);
        (m) Share of profits paid out to IAH, after transfers to or from reserves (amount and as a percentage of funds invested);
        (n) Share of profits paid out to the bank as Mudarib;
        (o) Movement on PER and IRR during the year;
        (p) The utilization and computation of PER and/or IRR during the period;
        (q) Average declared rate of return or profit rate on PSIA by maturity (3-month, 6-month, 12-month, 36-month);
        (r) Types of assets in which the funds are invested and the actual allocation among various types of assets;
        (s) Changes in asset allocation in the last six months;
        (t) Off-balance sheet exposures arising from investment decisions, such as commitment and contingencies;
        (u) Limits imposed on the amount that can be invested in any one asset;
        (v) The treatment of assets financed by IAH in the calculation of RWA for capital adequacy purposes;
        (w) Profits earned and profits paid out over the past five years (amount and as a percentage of funds invested); and
        (x) Amount of total administrative expenses charged to unrestricted IAH.
        Amended April 2011
        Amended October 2010
        April 2008

    • Restricted Investment Accounts: Qualitative Disclosure Requirements

      • PD-1.3.34

        The following qualitative disclosures should be made in addition to PD-1.3.32 (a) to (g) when the concerned Islamic bank has restricted investment accounts:

        (a) Written policies on the bank's fiduciary duties in managing IAH funds, and the policies and procedures for monitoring these duties; and
        (b) The duties and obligations of investment account managers in managing the IAH funds, and the policies and procedures for monitoring these duties and obligations.
        Amended April 2011
        Amended October 2010
        April 2008

    • Restricted Investment Accounts: Quantitative Disclosure Requirements

      • PD-1.3.35

        The following quantitative disclosures should be made in addition to PD-1.3.33 (a) to (w) — excluding (p) when the concerned Islamic bank has restricted investment account:

        (a) Current period returns;
        (b) Historical returns over the past five years;
        (c) The use of off-balance sheet transactions for investment management, where relevant; and
        (d) Disclosure of the range and measures of risks facing each restricted IAH fund, based on its specific investment policies.
        Amended April 2011
        Amended October 2010
        April 2008

    • Liquidity Risk Qualitative Disclosures

      • PD-1.3.36

        All banks must disclose a summary of the liquidity risk management framework used for assessing the risk exposure for each category of funding as well as on an aggregate basis:

        (a) Current accounts;
        (b) Unrestricted investment accounts; and
        (c) Restricted investment account.

        Banks must also disclose the policy on diversity of funding sources to allow sufficient resources to Shari'a-compliant funds to mitigate liquidity risk.

        Amended: April 2016
        Amended October 2010
        April 2008

    • Liquidity Risk Quantitative Disclosures

      • PD-1.3.37

        All banks must disclose the indicators of exposures to liquidity risk such as short-term assets to short-term liabilities, liquid asset ratios or funding volatility.

        April 2008

      • PD-1.3.38

        Banks must disclose a maturity analysis of financing and various categories of funding (current account, unrestricted investment account and restricted investment account) by different maturity buckets.

        April 2008

    • Rate of Return Risk Qualitative Disclosures

      • PD-1.3.39

        The following qualitative disclosures should be made for rate of return risk.

        (a) Discussion of factors affecting rates of return and benchmark rates, and the effects thereof on the pricing of contracts; and
        (b) Processes and systems to monitor and measure the factors that give rise to rate of return risk.
        Amended April 2011
        Amended October 2010
        April 2008

    • Rate of Return Risk Quantitative Disclosures

      • PD-1.3.40

        The following quantitative disclosures should be made for rate of return risk.

        (a) Indicators of exposures to rate of return risk- for example, data on expected payments/ receipts on financing and funding and the cost of funding at different maturity buckets according to time of maturity or time of re-pricing for floating rate assets or funding; and
        (b) Sensitivity analysis of bank's profits and the rate of returns to price or profit rate movements in the market, including detailed quantitative information about the nature and extent of profit-rate sensitive assets and liabilities and off-balance sheet exposures (e.g. breakdown of fixed and floating profit items and the profit margin earned, and the duration and effective profit rate of assets and liabilities). These disclosures should be by each portfolio identified in PD-1.3.23 a), showing their related gains and losses. Also, the effect on the value of assets, liabilities and economic capital for a benchmark change of 200bp in profit rates should be disclosed.
        Amended April 2011
        Amended October 2010
        April 2008

    • Displaced Commercial Risk (DCR) Disclosures

      • PD-1.3.41

        All banks must disclose the following regarding DCR:

        (a) The bank's policy on DCR, including the framework for managing the expectations of its shareholders and unrestricted IAH, the sharing of risks among the various stakeholders, and the range and measures of risk facing unrestricted IAH based on the bank's general business strategies and investment policies;
        (b) The historical data over the past five years for the following:
        (i) Total Mudarabah profits available for sharing between unrestricted IAH and shareholders as Mudarib (as a percentage of Mudarabah assets);
        (ii) Mudarabah profits earned for unrestricted IAH (as a percentage of assets) before any smoothing;
        (iii) Mudarabah profits paid out to unrestricted IAH (as a percentage of assets) after any smoothing;
        (iv) Balances of PER and IRR, and movement of these in determining unrestricted IAH payout excluding PD-1.3.33(p);
        (v) Variations in Mudarib's agreed profit-sharing ratio from the contractually agreed ratio; and
        (vi) Market benchmark rates selected by the bank;
        (c) Five year comparison of historical rate of return of unrestricted IAH in relation to the market benchmark rate selected by the bank;
        (d) Five year comparison between the percentage rate of returns to IAH and the percentage returns to shareholders from Mudarabah profits;
        (e) Amount and percentage of profits appropriated to PER and IRR;
        (f) Analysis of the difference between aggregate Mudarabah-earned profit and profit distributed to IAH as a function of movement in PER, IRR and the Mudarib's share; and
        (g) Analysis of the proportion of the RWA funded by IAH that should be considered in arriving at the total RWA together with an explanation of the underlying rationale.
        Amended: April 2016
        Amended April 2011
        Amended October 2010
        April 2008

    • Disclosures Concerning other Risks

      • PD-1.3.42

        The following quantitative information about investments in foreign subsidiaries (as included in the Financial Statements Section and representing foreign currency translation risk) must be included in the Annual Report, supplemented by a discussion about:

        (a) The nature of the related currency exposure;
        (b) How that exposure has changed from year to year;
        (c) Foreign exchange translation effects thereon;
        (d) The earnings impact of foreign exchange transactions; and
        (e) The effectiveness of risk management (hedging) strategies.
        Amended April 2011
        Amended October 2010
        April 2008

    • Compliance Disclosures

      • PD-1.3.43

        The annual report must include a declaration by the external auditor that it did not come across any violations of the requirements below during the course of its audit work that would have any material negative impact on the financial position of the bank:

        (a) The Bahrain Commercial Companies Law (as amended);
        (b) The CBB Law where a violation might have had a material negative effect on the business of the bank or on its financial position;
        (c) The Regulations and Directives issued by the CBB, including Volume 6 (Capital Markets); and
        (d) The Rulebook of the licensed exchange and associated Resolutions, Rules and Procedures (where applicable).
        Amended: April 2016
        Amended October 2011
        Amended April 2011
        Amended January 2011
        Amended October 2010
        April 2008

      • PD-1.3.44

        The Annual Report must disclose the amount of any penalties paid to the CBB during the period of the report together with a factual description of the reason(s) given by the CBB for the penalty (see Section EN-1.3). Bahraini Islamic bank licensees which fail to comply with this requirement will be required to make the disclosure in the annual report of the subsequent year and will be subject to an enforcement action for non-disclosure.

        Amended: October 2019
        Amended October 2010
        April 2008