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  • Closely related counterparties – Criteria

    • CM-2.5.4

      In order for the licensee to establish the existence of a group of closely related counterparties, it must assess the relationship amongst counterparties by referring to one or more of the following criteria:

      (a) Control relationship: One of the counterparties, directly or indirectly, has control over the other(s) based on the following:
      (i) Where one entity owns 50% or more of the voting rights of another entity.
      (ii) Where one entity is deemed to have control by virtue of voting agreements (e.g. control of a majority of voting rights pursuant to an agreement with other shareholders).
      (iii) Where one entity exercises significant influence on the appointment or dismissal of an entity’s board and/or senior management, such as the right to appoint or remove a majority of such persons, or the fact that a majority of such persons have been appointed solely as a result of the exercise of an individual entity’s voting rights.
      (iv) Where one entity has significant influence on the board or senior management, e.g. an entity has the power, pursuant to a contract or otherwise, to exercise a controlling influence over the management or policies of another entity (e.g. through consent rights over key decisions).
      ; or
      (b) Economic interdependence: If one of the counterparties were to experience financial problems, in particular funding or repayment difficulties, the other(s), as a result, would also be likely to encounter funding or repayment difficulties.
      Added: June 2022

    • CM-2.5.5

      Bahraini conventional bank licensees are also expected to refer to criteria specified in IFRS for further qualitative guidance when determining control.

      Added: June 2022

    • CM-2.5.6

      Bahraini conventional bank licensees must assess the control relationship using the following criteria:

      (a) Voting agreements (e.g. control of a majority of voting rights pursuant to an agreement with other shareholders);
      (b) Significant influence on the appointment or dismissal of an entity’s administrative, management or supervisory body, such as the right to appoint or remove a majority of members in those bodies, or the fact that a majority of members have been appointed solely as a result of the exercise of an individual entity’s voting rights;
      (c) Significant influence on senior management, e.g. an entity has the power, pursuant to a contract or otherwise, to exercise a controlling influence over the management or policies of another entity (e.g. through consent rights over key decisions).
      Added: June 2022

    • CM-2.5.7

      The CBB will exercise its discretion in applying the definition of closely related counterparties on a case-by-case basis if it finds, during its onsite or offsite supervisory review, any linkage of such counterparties.

      Added: June 2022

    • CM-2.5.8

      In establishing closely related counterparty relationships based on economic interdependence (CM-2.5.4 (b)), licensees must consider, at a minimum, the following qualitative criteria:

      (a) Where 50 percent or more of one counterparty’s gross receipts or gross expenditures (on an annual basis) are derived from transactions with the other counterparty (e.g. the owner of a residential/commercial property and the tenant who pays a significant part of the rent);
      (b) Where one counterparty has fully or partly guaranteed the exposure of the other counterparty, or is liable by other means, and the exposure is so significant that the guarantor is likely to default if a claim occurs;
      (c) Where a significant part of one counterparty’s production/output is sold to another counterparty, which cannot easily be replaced by other customers;
      (d) When the expected source of funds to repay each loan one counterparty makes to another is the same and the counterparty does not have another source of income from which the loan may be fully repaid;
      (e) Where it is likely that the financial problems of one counterparty would cause difficulties for the other counterparties in terms of full and timely repayment of liabilities;
      (f) Where the insolvency or default of one counterparty is likely to be associated with the insolvency or default of the other(s); and
      (g) When two or more counterparties rely on the same source for the majority of their funding and, in the event of the common provider’s default, an alternative provider cannot be found. In this case, the funding problems of one counterparty are likely to spread to another due to a one-way or two-way dependence on the same main funding source.
      Added: June 2022