Back Custom print Link Text Only Rich Text Print

  • CA-A CA-A Introduction

    • CA-A.1 CA-A.1 Purpose

      • Executive Summary

        • CA-A.1.1

          The purpose of this Module is to set out the Central Bank of Bahrain (CBB)'s capital adequacy Rules and provide guidance on the risk measurements for the calculation of capital requirements by Bahraini Islamic bank licensees. This requirement is supported by Article 44(c) of the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006).

          January 2015

        • CA-A.1.2

          Principle 9 of the Principles of Business requires that Islamic bank licensees maintain adequate human, financial and other resources, sufficient to run their business in an orderly manner (see Section PB-1.9). In addition, Condition 5 of CBB's Licensing Conditions (Section LR-2.5) requires Islamic bank licensees to maintain financial resources in excess of the minimum requirements specified in Module CA (Capital Adequacy).

          January 2015

        • CA-A.1.3

          This Module also sets out the minimum leverage requirements which Islamic bank licensees (referred to in Section CA-B.1) must meet as a condition of their licensing.

          January 2015

        • CA-A.1.4

          The requirements specified in this Module vary according to the inherent risk profile of a licensee, and the volume and type of business undertaken. As one of the principal objectives of the CBB (as outlined in Article 3 of the CBB Law 2006) is the protection of depositors, it is essential to ensure that the capital recognised in regulatory capital measures is readily available for those depositors and to ensure that Islamic bank licensees hold sufficient capital to provide some protection against unexpected losses in the normal course of business, and otherwise allow Islamic banks to effect an orderly wind-down of their operations. The minimum capital requirements specified here may not be sufficient to absorb all unexpected losses. The CBB therefore may impose more stringent capital requirements than those stated in this Module on certain banks taking into account the riskiness of the activities conducted by the concerned bank (see Paragraph CA-A.1.5A).

          January 2015

        • CA-A.1.5

          The CBB requires that Islamic bank licensees maintain adequate capital, in accordance with the requirements of this Module, against their risks. In particular, all Bahraini Islamic bank licensees are required to maintain capital adequacy ratios or CARs (both on a solo and a consolidated basis where applicable) above the minimum levels set out in Chapters CA-B and CA-2. Failure to remain above these ratios will result in enforcement and other measures as outlined in Section CA-1.2 and Module EN. The detailed methodology for calculating the CARs is set out in the instructions for the form PIRI.

          January 2015

        • CA-A.1.5A

          All Bahraini Islamic bank licensees must maintain their own target capital ratios above the supervisory CARs mentioned in Section CA-B.2. Each concerned licensee must observe individual target ratios as agreed with the CBB on a case-by-case basis subject to a methodology to be disclosed in due course.

          January 2015

        • CA-A.1.6

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

          (a) Prudential Consolidation and Deduction Requirements;
          (b) Licensing and Authorisation Requirements;
          (c) CBB Reporting Requirements;
          (d) Credit Risk Management;
          (e) Operational Risk Management;
          (f) High Level Controls:
          (g) Relationship with Audit Firms; and
          (h) Enforcement.
          January 2015

      • Legal Basis

        • CA-A.1.7

          This Module contains the CBB's Directive (as amended from time to time) relating to the capital adequacy 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 in its entirety to all Bahraini Islamic bank licensees.

          January 2015

        • CA-A.1.8

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

          January 2015

    • CA-A.2 CA-A.2 Module History

      • CA-A.2.1

        This Module was first issued in January 2005 as part of the Islamic principles volume. Material changes took place in January 2008 to implement Basel II and the IFSB Capital Adequacy Standard (IFSB-2). Other changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the changes were made. Chapter UG-3 provides further guidance on Rulebook maintenance and version control.

        January 2015

      • CA-A.2.1A

        The most recent changes are detailed in the Table below.

        Summary of Changes

        Module Ref. Change Date Description of Changes
        CA-A.2 10/2007 New Rule CA-A.2.5 introduced, categorising this Module as a Directive.
        CA-1 to CA-6 01/2008 Basel II implementation.
        CA-1.5 01/2008 Review of PIR by external auditors
        CA-4.6 04/2008 Recognition of IIRA as ECAI and mapping of ratings
        CA-4.2.15-18 01/2009 New guidance and rules on SMEs
        CA-A 01/2011 Various minor amendments to ensure consistency in CBB Rulebook.
        CA-A.2.5 01/2011 Clarified legal basis.
        CA-5.1 & CA-5.3 01/2012 Changes in respect of July 2009 and February 2011 amendments to Basel II.
        CA-4.2.10 and CA-4.2.11A 04/2012 Amendment made for claims on banks dealing with self-liquidating letters of credit.
        CA-2.1.4(g) 10/2013 Added Rule to include limited general provision against unidentified future losses as part of Tier 2.
        CA-2.1.4(f), CA-2.1.4A to CA-2.1.4C and CA-2.2.1 10/2013 Added Rules to deal with subordinated issued for Tier 2 capital.
        CA-5.5.13 10/2013 Clarified Rules on structural positions for foreign exchange risk.
        Module CA 1/2015 Extensive changes in respect of IFSB-15 (capital adequacy).
        CA-1.3.3 04/2015 Existing exemptions in respect of PIRI review will cease as at 31st December 2014 for all Bahraini Islamic bank licensees.
        CA-2.1.2 04/2015 Underlined the term 'financial instrument' so that it is linked to the glossary definition.
        CA-2.4.2 04/2015 Clarified that intangible assets other than goodwill and mortgage servicing rights are subject to transitional arrangements and are phased out as regulatory adjustments as outlined in Subparagraph CA-B.2.1(d).
        CA-2.4.12 04/2015 Clarified that shares of the bank held as collateral are considered as shares held indirectly and are subject to deduction under regulatory adjustments.
        CA-2.4.25 04/2015 Clarified the rule on significant investments in commercial entities by adding cross reference to definition.
        CA-2A.3.3 04/2015 Paragraph deleted as not applicable on the implementation of the capital conservation buffer.
        CA-B.2.1(d) 07/2015 Amendment made to clarify that during the transition period, the remainder not deducted from capital is subject to the risk weights outlined in the October 2014 version of Chapter CA-3.
        CA-2.4.25 and CA-2.4.26 07/2015 Amendment made to reflect the treatment of the risk weighting for exposures below the threshold limits.
        CA-6.2.5 07/2015 Corrected the treatment of the depreciation of Ijarah assets in the definition of gross income.
        CA-4.2.4, CA-4.2.4A and CA-4.2.4B 04/2016 Updated risk weightings for claims on non-central government public sector entities (PSEs).
        CA-9.1.4 04/2016 Corrected cross reference.
        CA-2.4.25 10/2016 Updated reference to CM Module.
        CA-B.1.5 and CA-B.1.6 07/2017 Deleted the term 'financial entity'.
        CA-3.2.18, CA-3.3.9 & CA-3.4.16 07/2017 Amended wording for consistency purposes.
        CA-10 08/2018 Added new Section on Leverage Ratio Requirements.
        CA-4.2.19B 07/2019 Added a new Paragraph on exposures to Social Housing Schemes
        CA-9.1.6 (e) 07/2019 Amended sub-paragraph to allow real estate taken as collateral to be insured under another insurance arrangement.
        CA-1.1.6 01/2022 Amended Paragraph.
        CA-1.1.6A 01/2022 Added new Paragraph on reverting from standardised approach to basic indicator approach.
        CA-4.2.19B 10/2022 Amended Paragraph on the implementation of social housing schemes.
        CA-4.7.14A 01/2023 Added a new Paragraph on recognition of credit default guarantees provided by Tamkeen.
        CA-10.6 07/2023 Added a new Section on Gearing.

      • Evolution of Module

        • CA-A.2.2

          The contents retained from the previous Module (Capital Adequacy — Islamic Banks) are effective from the dates depicted above.

          January 2015

    • CA-A.3 – CA-A.4

      [Sections CA-A.3 to CA-A.4 were deleted in January 2015.]

      Deleted: January 2015