• PD-1.3 PD-1.3 Disclosures in the Annual Report

    • Introduction

      • PD-1.3.1

        Licensees 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 licensee. The disclosures should be addressed in clear terms and with appropriate details to help achieve a satisfactory level of transparency.

        January 2014

      • PD-1.3.2

        If a licensee is unable to achieve full compliance with the requirements stated in this Chapter, a meeting should be held with the relevant Banking Supervision Director 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 licensee to call for such meetings.

        January 2014

    • Scope of Application — Qualitative Disclosures

      • PD-1.3.3

        The following information must be disclosed in relation to the licensee, its subsidiaries and associates:

        (a) The full legal name of the top corporate entity in the group to which the disclosure requirements apply; and
        (b) An outline of the differences in the basis of consolidation for accounting and regulatory purposes.
        January 2014

    • Financial Performance and Position

      • PD-1.3.4

        The following information should be included:

        (a) Discussion of the main factors that influenced the licensee'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 licensee's future financial performance;
        (b) Basic quantitative indicators of financial performance (e.g. ROAE, ROAA, NIM, cost-to-income ratios) 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 any changes in the capital structure and their possible impact on earnings and dividends.
        January 2014

    • Corporate Governance and Transparency

      • PD-1.3.5

        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) 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;
        (ii) Segregation of duties;
        (iii) Reporting lines; and
        (iv) Responsibilities;
        (d) Descriptive information on the performance-linked incentive structure for the Chief Executive, the General Manager, Managers, Shari'a Board and the Board of directors (remuneration policies, executive compensation, stock options, etc.);
        (e) Nature and extent of transactions with related parties (as defined by IFRS and AAOIFI as appropriate — see also PD-1.3.11(d));
        (f) Approval process for related party transactions;
        (g) Information about any changes in the structures (as mentioned in Subparagraphs PD-1.3.5(a) to PD-1.3.5(c)) from prior periods;
        (h) The communications strategy approved by the Board (including the use of the licensee's website) which should undertake to perform at least the following:
        (i) The disclosure of all relevant information to stakeholders on a periodic basis in a timely manner; and
        (ii) The provision of at least the last three years of financial data on the licensee's website;
        (i) Distribution of ownership of shares by nationality;
        (j) Directors' and senior managers' trading of the licensee'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) Number and names of independent board members;
        (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) Meeting dates (number of meetings during the year);
        (u) Attendance of directors at each meeting;
        (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 per year, the actual number of board meetings, attendance of committees' members and the work of committees and any significant issues arising during the period;
        (x) Reference to Module HC and any amendments subsequently made by the CBB, including explanation and nature of any non-compliance with Module HC in accordance with Paragraph HC-A.1.8;
        (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) Licensees must maintain a website;
        (cc) Aggregate remuneration paid to board members;
        (dd) Remuneration policy of the licensee for board members and senior management; and
        (ee) Aggregate remuneration paid to senior management.
        January 2014

      • PD-1.3.5A

        With regards to corporate governance, licensees are subject to additional disclosure requirements on corporate governance, whereby such disclosure are for the benefit of shareholders (See Chapter PD-4).

        January 2014

    • Capital Structure — Qualitative Disclosures

      • PD-1.3.6

        All licensees must disclose summary information of the terms and conditions of the main features of all capital instruments listed in Paragraph PD-1.3.7 including innovative, complex or hybrid capital instruments.

        January 2014

    • Capital Structure — Quantitative Disclosures

      • PD-1.3.7

        All licensees must disclose the amount of core capital with separate disclosures of:

        (a) Authorised capital;
        (b) Paid-up share capital/common stock;
        (c) Breakdown of reserves and retained earnings;
        (d) Minority interests in the equity of subsidiaries;
        (e) Other capital instruments such as subordinated debt or hybrid capital instruments; and
        (f) Regulatory deductions from core capital (see Paragraph CA-1.1.6 for more guidance).
        January 2014

    • Capital Adequacy

      • PD-1.3.8

        All licensees must present a summary of the licensee's approach to assessing the adequacy of capital and adherence to the gearing requirements to support current and future activities.

        January 2014

    • General Qualitative Disclosure Requirements

      • PD-1.3.9

        All licensees 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 including 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-1.3.10 – PD-1.3.12);
        (b) Securitisations (see also PD-1.3.13 – PD-1.3.14); and
        (c) Operational Risk (see also PD-1.3.15 – PD-1.3.16).
        January 2014

    • Credit Risk — Qualitative Disclosures

      • PD-1.3.10

        All licensees must make the general qualitative disclosures outlined in Paragraph PD-1.3.9, as well as those below:

        (a) Definition of past due and impaired credit facilities (for accounting purposes); and
        (b) Description of the approaches for specific and collective impairment provisions and statistical methods used (where applicable).
        January 2014

    • Credit Risk — Quantitative Disclosures

      • PD-1.3.11

        All licensees must disclose the following:

        (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 company during the period, average gross exposures need not be disclosed. Licensees 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 licensee'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. Licensees 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, and whether such transactions have been made on an arm's length basis;
        (e) By major industry or counterparty type:
        (i) Amount of impaired loans/facilities and past due loans/facilities (see PD-1.3.12);
        (ii) Specific and collective impairment provisions (see PD-1.3.12);
        (iii) Charges for specific impairment provisions and charge-offs (write-offs) during the period; and
        (iv) Reconciliation of changes in provisions for loan impairment;
        (f) Amount of past due credit facilities, separately broken down by significant geographic areas, including the amounts of specific and collective impairment provisions related to each geographical area (see PD-1.3.11(b) for definition of geographical area);
        (g) Aggregate quantitative information about all outstanding credit facilities at year end not included in (f) above that have been restructured (according to the definition in the PIR instructions) during the period including:
        (i) The balance of any restructured credit facilities ;
        (ii) The magnitude of any restructuring activity;
        (iii) The impact of restructured credit facilities 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; and
        (h) Quantitative information concerning obligations with respect to recourse transactions (i.e. where the asset has been sold, but the company retains responsibility for repayment if the original counterparty defaults or fails to fulfil their obligations). Information must include the amount of assets sold and any expected losses.
        January 2014

      • PD-1.3.12

        For Paragraph PD-1.3.11, the following notes are provided for interpretative guidance:

        (a) Licensees must follow the residual maturity groupings currently followed under IFRS 7, but they must also extend the periods to include 5-10 years, 10-20 years, and 20 years and over (where the licensees have exposures or liabilities of such maturity);
        (b) In PD-1.3.11(e), licensees must provide an ageing of past due credit facilities on the following basis:
        (i) Ageing schedule (over 3 months, over 1 year and over 3 years) of past due credit facilities and other assets; and
        (ii) Breakdown by relevant counterparty type and geographic area;
        (c) For specific, collective and other impairment provisions, the portion of collective impairment provisions not allocated to specific geographical areas should be shown separately; and
        (d) The reconciliation of changes in provisions should show specific and collective impairment provisions separately.
        January 2014

    • Securitisation — Qualitative Disclosure Requirements

      • PD-1.3.13

        All licensees must disclose the following with respect to securitisation activities:

        (a) The general qualitative disclosure requirement (PD-1.3.9) with respect to securitisation, including a summary of:
        (i) The licensee's objectives in relation to its securitisation activities, including the extent to which these activities transfer credit risk of the underlying securitised exposures away from the licensee to other parties; and
        (ii) The roles played by the licensee in the securitisation process (for example, is the licensee the originator of the underlying risks, is it an investor, is it a servicer, is it a provider of credit enhancement, is it a sponsor of an asset-backed commercial paper facility, is it a liquidity provider, or is it a swap provider?) and an indication of the licensee's involvement in each of them;
        (b) A summary of the licensee's accounting policies for securitisation activities, including:
        (i) Whether transactions are treated as sales or financing;
        (ii) Recognition of gain on sale;
        (iii) Key assumptions for valuing retained interests, including any changes since the last report and the impact of such changes; and
        (iv) Treatment of synthetic securitisations if not covered by other accounting policies (e.g. derivatives); and
        (c) The names of External Credit Assessment Institutions (ECAIs) used for securitisations and the type of securitisation exposure for which each agency is used.
        January 2014

    • Securitisation — Quantitative Disclosure Requirements

      • PD-1.3.14

        Licensees must disclose the following quantitative information with respect to securitisation activities:

        (a) The total outstanding exposures securitised by the licensee and subject to the securitisation framework (broken down into traditional and synthetic), by exposure type. These should be categorised under bands such as credit cards, home equity, etc. Also licensees must separately report any securitisation transactions for the year of inception where they do not retain any exposure. Licensees should also clearly identify securitisations where they are acting purely as sponsors;
        (b) Securitisations broken down by exposure type showing:
        (i) The amount of impaired or past due assets securitised; and
        (ii) Losses recognised by the company during the current period;
        (c) The aggregate amount of securitisation exposures retained or purchased, broken down by exposure type; and
        (d) Summary of current year's securitisation activity, including the amount of exposures securitised (by exposure type) and recognised gain or loss on sale by asset type.
        January 2014

    • Operational Risk Disclosures

      • PD-1.3.15

        All licensees must disclose the general qualitative disclosures (PD-1.3.9) and also the approach for operational risk which the licensee employs to control such risk, and disclosures of any issues considered to be individually significant.

        January 2014

      • PD-1.3.16

        All licensees must disclose quantitative information on any material legal contingencies including pending legal actions, and a discussion and estimate of the potential liabilities, in addition to qualitative statements about how licensees manage and control such risks.

        January 2014

    • Compliance

      • PD-1.3.17

        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 licensee:

        (a) The Bahrain Commercial Companies Law;
        (b) The CBB Law where a violation might have had a material negative effect on the business of the licensee 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.
        January 2014

      • PD-1.3.18

        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 Module EN). Licensees which fail to comply with this requirement will be required to make the disclosure in the annual audited financial statements of the subsequent year and will be subject to enforcement action for non-disclosure.

        Amended: October 2019
        January 2014