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  • IC-1.5 IC-1.5 Capital Planning

    • IC-1.5.1

      Bahraini Islamic bank licensees must develop a comprehensive Capital Planning Policy which clearly articulates the guidelines for capital planning, capital usage, capital distribution (i.e. issuing dividends, share buy-back, etc.), determining capital composition and capital-raising mechanisms under different conditions.

      July 2018

    • IC-1.5.2

      Bahraini Islamic bank licensees must state their objectives in deciding how much capital to hold. Banks must ensure that the capital objectives go beyond the regulatory minimum to support risks and to take into account the following considerations:

      (a) Level of creditworthiness of the bank to be achieved in markets, that is higher than that indicated by the minimum regulatory capital requirements;
      (b) Fluctuations in capital adequacy ratios, as a result of changes in type and volume of activities and risk exposures in the normal course of business;
      (c) Cost of capital-raising, especially in situations where capital injections need to be carried out quickly or at a time when market conditions are unfavourable;
      (d) Potential breach of the minimum regulatory capital requirements and regulatory actions in such an event;
      (e) Risks arising from the features of the jurisdictions and markets in which the bank operates; and
      (f) Limitations in risk assessment infrastructure, and methodologies.
      July 2018

    • IC-1.5.3

      Bahraini Islamic bank licensees must develop their ICAAP on a consolidated and solo basis. Banks must ensure that their consolidated capital is adequate to:

      (a) Support the volume and risk characteristics of all parent and subsidiary activities; and
      (b) Provides a sufficient cushion to absorb potential losses arising from such activities.
      July 2018

    • IC-1.5.4

      Bahraini Islamic bank licensees must ensure that their consolidated ICAAP addresses the following:

      (a) That the total capital estimated as appropriate for the group has been allocated to each group member, according to their respective risk profiles; and
      (b) That the group risks they face (including reputation risk arising from the failure of another group member, and the risks they face due to exposure to, or dependence on, other group members) are fully evaluated.
      July 2018

    • Capital Adequacy Objectives

      • IC-1.5.5

        The CBB may impose specific capital charge, and / or limits, on all material risk exposures, if warranted. This may include risks that the CBB considers not have been adequately transferred, or mitigated, through transactions entered into by the Bank (e.g. securitization transactions)

        July 2018

      • IC-1.5.6

        In stating their capital adequacy, banks must:

        (a) Use formal economic capital models for setting capital objectives and targets and assessing its capital adequacy. The CBB will determine which banks may be exempted from establishing formal economic capital model on a case to case basis;
        (b) Assess whether their long-run capital objectives differ significantly from their short-run capital objectives. As it may take time for a bank to raise new capital, the bank must make allowances for unexpected events, including putting contingency plans in place for raising additional capital;
        (c) State the time horizon for achieving their capital adequacy objectives, and set out in broad terms the capital planning process and the responsibilities for that process. The capital plan should recognise that accommodating additional capital needs requires significant lead time, and take into account the potential difficulties of raising additional capital during downturns or other times of stress. It must also set out how the bank will comply with regulatory capital requirements, any relevant limits related to capital, and a general contingency plan for dealing with divergences and unexpected events;
        (d) Develop an internal strategy for maintaining capital levels which must not only reflect the desired level of risk coverage but also incorporate factors such as portfolio growth expectations, future sources and uses of funds, and dividend policy. There may be other considerations that the banks consider relevant or important in determining how much capital it must hold (e.g. external rating goals, market image, strategic goals, etc.). If these other considerations are included in the ICAAP, the bank must show how the considerations have influenced its decisions concerning the amount of capital to be held; and
        (e) Ensure that capital objectives and targets are reviewed and approved by the Board, on an annual basis at least, to ensure their appropriateness.
        July 2018

      • IC-1.5.7

        Bahraini Islamic bank licensees must ensure that adequate capital is held against all material risks not just at a point in time, but over time, to account for changes in their strategic direction, evolving economic conditions and volatility in the financial environment.

        July 2018

    • Risk Modelling

      • IC-1.5.8

        Bahraini Islamic bank licensees using risk-modelling techniques to assess capital adequacy must comprehensively identify their capital needs on the basis of both quantifiable and non-quantifiable risks. Banks must not rely on quantitative methods alone to assess capital adequacy. Non-quantifiable risks, if material, must also be included using qualitative assessment and management judgment.

        July 2018

    • Design of ICAAP

      • IC-1.5.9

        Bahraini Islamic bank licensees must present in their ICAAP report and how risks relate to capital levels under both normal and stressed conditions.

        July 2018

    • Recovery Plan

      • IC-1.5.10

        Bahraini Islamic bank licensees must develop, commensurate with the nature, size, complexity and scale of its activities, a recovery plan in line with Chapter 2 of Module DS. Recovery plans must be approved, and reviewed regularly, by the Board. The recovery plan must include information and analysis to reflect the appropriate coverage and granularity of the recovery plan, as well as key elements including:

        (a) Governance arrangements and escalation process following a triggering event;
        (b) Quantitative and qualitative triggers and early warning indicators; and
        (c) Recovery options based on the appropriate number of market-wide (systemic) stress scenarios and bank-specific (idiosyncratic) stress scenarios to assess which recovery options would be effective in a range of stress situations.
        Amended: January 2022
        Added: July 2018

      • IC-1.5.11

        Bahraini Islamic bank licensees must develop and maintain a recovery plan trigger framework (which must be embedded within the bank's risk management framework), to prompt recovery action in a timely manner.

        July 2018

      • IC-1.5.12

        Recovery triggers must be well defined and tailored to the full range of risks faced by banks. Notwithstanding other triggers that might be considered, the capital ratio trigger must not be less than 13%. The threshold level for triggers must be calibrated with impact on the bank's capital and set out clearly in the bank's recovery plan.

        July 2018

      • IC-1.5.13

        Bahraini Islamic bank licensees must establish an adequate monitoring process to support the operation of the trigger framework in their recovery plan.

        July 2018

      • IC-1.5.14

        Bahraini Islamic bank licensees must submit to the CBB annually their recovery plans by the 31st of August.

        Added: July 2021