(a) Domestic economic downturn — this estimates the impact on bank's asset quality, impairment provisions, profitability and capital adequacy of adverse changes in selected macroeconomic variables (e.g. GDP growth, unemployment rate, rates of return, bankruptcy rates and asset prices etc.) that are relevant to the bank's exposures;

(b) Economic downturn in major economies affecting Bahrain (e.g. U.S., Saudi Arabia, UAE etc.) — this estimates the impact on a bank's counterparty exposures (e.g. corporate financing, holdings in securities, interbank exposures etc.) as a result of economic downturn in major economies that have significant financial / commercial / trading links with Bahrain;

(c) Decline in the real estate market - this estimates the impact of a decline in property prices on collateral coverage, default risk and provisioning needs for financing assets secured by properties;

(d) Decline in the value and market liquidity of financial collateral — this estimates the impact of a decline in the valuation and market liquidity of financial collateral, which reduces the quality and quantity of the collateral, leading to lower collateral coverage and recovery rates and higher provisioning needs and capital charges;

(e) Increases in non-performing facilities ('NPF') and provisioning levels — this assesses the resilience of a bank's financing portfolios in terms of the impact of such increases on its profitability and capital adequacy. In designing the scenario, banks may apply different percentages of increase in classified financing facilities and provisioning levels to its financing portfolios;

(f) Rating migration of counterparties — a test based on the internal or external ratings of bank's credit exposures, by migrating a certain percentage of the credit exposures of a specific rating grade (by one or more notches) to a lower rating grade, and assessing the resultant impact on a bank's profitability and capital adequacy. The capital impact may include the effects of increases in credit losses and provisioning needs as well as the application of higher risk-weights due to rating downgrades in the calculation of regulatory capital; and

(g) Default of major counterparties — this estimates the impact of default of a bank's major counterparties, including corporate, sovereign and bank counterparties, on its profitability as well as liquidity and capital adequacy. The test can be extended to cover aggregate exposures to major industries, market sectors, countries and regions (e.g. by assuming that a significant number of defaults occur within such aggregate exposures).

(a) 'gap risk' arises from the term structure of banking book instruments, and describes the risk arising from the timing of instruments' rate changes. The extent of gap risk depends on whether changes to the term structure of rates of return occur consistently across the yield curve (parallel risk) or differentially by period (non-parallel risk);

(b) 'basis risk 'describes the impact of relative changes in rates of return for financial instruments that have similar tenors but are priced using different rate of return indices; and

(c) 'option risk' arises from hedge positions or from optional elements embedded in the bank's assets, liabilities and off-balance sheet items, where the bank or its customer can alter the level and timing of their cash flows.

(a) Tightening of financing lines — the potential impact of liquidity stress on the solvency position arising from a higher cost of funding due to tightening of funding markets and loss in the value of marketable securities due to market illiquidity;

(b) Funding concentration — this assesses the liquidity risk of significant business activities and concentration to a particular source of funding such as large investment account holders, wholesale market funding or holdings of a particular asset class; and

(c) Withdrawal risk of investment account holders ('IAH') — this assesses the liquidity risk arising from honouring redemptions by investment account holders of unrestricted investment accounts at the level of individual funds in case of Islamic Windows.

(a) Increased volatility in key financial markets assesses the effects of increased volatility and adverse movements of market risk factors (i.e. rates of return, foreign exchange rates and equity or commodity prices) on a bank's market risk exposures;

(b) Effect of key monetary decisions by the CBB, which might impact stock prices, FX rates and rates of return;

(c) Effect on the bank arising from a rating downgrade of sovereign, leading to widening of credit spreads, and a fall in equity prices; and

(d) Structural changes to the economy of the main countries in which the bank operates.

(a) Decline in net profit margin — this estimates the impact on the bank's net profit margin due to negative financing growth or displaced commercial risk;

(b) Risk concentrations — this estimates the impact from changes in market conditions which could give rise to risk concentrations. Banks may identify and assess the impact of heightened correlations or hidden inter-dependencies within and across risk types / risk factors, and possible second-round effects under severe market shocks that may lead to an increase in bank's exposures; and

(c) Operational risk events — this assesses the effects, on a bank's capital requirement for operational risk or its ability to maintain critical operations and earning capabilities, of external events (e.g. external fraud, vendor failure, utility outage and service disruption) or internal events (e.g. internal fraud, business disruption or system failures, telecommunication problems and loss of key personnel).