CA CA Microfinance Institutions Capital Adequacy and Liquidity Requirements Module
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 CBB's regulations for minimum capital requirements. This requirement is supported by Article 44(c) of the Central Bank of Bahrain and Financial Institutions Law 2006 (CBB Law).
January 2014CA-A.1.2
Principle 9 of the Principles of Business requires that
microfinance institution 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 the CBB's Authorised Conditions (Section AU-2.5) requiresmicrofinance institution licensees to maintain financial resources in excess of the minimum requirements specified in this Module.January 2014CA-A.1.3
This Module sets out the minimum capital requirements which
microfinance institution licensees must meet as a condition of their licensing.January 2014CA-A.1.4
The purpose of these requirements is to ensure that
microfinance institution licensees hold sufficient financial resources to provide some protection against unexpected losses.January 2014CA-A.1.5
The CBB requires that
microfinance institution licensees maintain adequate capital in accordance with the requirements of this Module, against their risks.January 2014Legal Basis
CA-A.1.6
This Module contains the CBB's Directive relating to the capital requirements and gearing of
microfinance institution 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 to allmicrofinance institution licensees. January 2014CA-A.2 CA-A.2 Module History
Evolution of Module
CA-A.2.1
This Module was first issued in January 2014 by the CBB. Any material changes that have subsequently been made to this Module are annotated with the calendar quarter date in which the change was made. Chapter UG-3 provides further details on Rulebook maintenance and version control.
January 2014CA-A.2.2
A list of recent changes made to this Module is provided below:
Module Ref. Change Date Description of Changes CA-1.1.4 and CA-1.1.5 10/2014 Updated capital requirements to be aligned with the term and definition of 'core capital'. CA-1.1.3 01/2019 Amended minimum Capital Adequacy ratio. CA-1.1.4 01/2019 Amended Paragraph defining Capital Adequacy ratio. CA-1.1.5A 01/2019 Added a new Paragraph on risk weighted asset items. CB-1.1.5B 01/2019 Added a new Paragraph on claims on banks. CB-1.1.5C 01/2019 Added a new Paragraph on short-term claims. CA-1.1.6 01/2019 Amended Paragraph on maintaining minimum CAR. CA-1.1.7 01/2019 Amended Paragraph. CA-1.1.8 01/2019 Amended guidance and changed to Rule. CA-1.1.9 01/2019 Amended Paragraph. CA-1.1.1 04/2019 Amended the minimum capital required. CA-B CA-B Scope of Application
CA-B.1 CA-B.1 Scope of Application
CA-B.1.1
This Module is applicable to all
microfinance institution licensees (authorised in the Kingdom, thereafter referred to in this Module aslicensees ).January 2014CA-1 CA-1 Regulatory Capital and Liquidity
CA-1.1 CA-1.1 Capital Requirements
Minimum Capital Requirement
CA-1.1.1
A
licensee must maintain at all times a minimum paid-up capital of BD 2 million provided by the shareholders/promoters and/or through grants and donations. A greater amount of capital may be required by the CBB on a case-by-case basis.Amended: April 2019
January 2014CA-1.1.2
In addition to the requirements of Paragraph CA-1.1.1, the CBB may require that an acceptably worded letter of guarantee be provided. The CBB may seek a letter of guarantee from
controllers .January 2014Capital Adequacy Ratio (CAR)
CA-1.1.3
In addition to the requirements outlined in Paragraphs CA-1.1.1 and CA-1.2.1, all
licensees must maintain a minimum Capital Adequacy Ratio of 12%.Amended: January 2019
January 2014CA-1.1.4
For purposes of Paragraph CA-1.1.3, the capital adequacy ratio is defined as the total core capital divided by the risk weighted assets.
Amended: January 2019
Amended: October 2014
January 2014CA-1.1.5
For purposes of Paragraph CA-1.1.4, total core capital refers to:
(a) Issued and fully paid ordinary shares (net of treasury shares);(b) Retained earnings (losses) brought forward, including interim profits/losses; and(c) All disclosed reserves brought forward, that are audited and approved by theshareholders , in the form of legal, general and other reserves created by appropriations of retained earnings;LESS:(d) Other deductions, as specified by the CBB.Amended: October 2014
January 2014Claims on Banks
CA-1.1.5B
Claims on banks must be risk weighted as given in the following table. No claim on an unrated bank may receive a risk weight lower than that applied to claims on its sovereign of incorporation.
Banks Credit Quality Grades AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- Below B- Un-rated ECAI 1 ECAI 2 ECAI 3 ECAI 4 ECAI 5 - Standard risk weights 20% 50% 50% 100% 150% 50% Added: January 2019CA-1.1.5C
Short-term claims on locally incorporated banks may be assigned a risk weighting of 20% where such claims on the banks are of an original maturity of 3 months or less denominated and funded in either BD or US dollar.
Added: January 2019CA-1.1.6
Licensees must ensure that at all times they maintain the minimum CAR outlined in Paragraph CA-1.1.3. In the event that thelicensee does not comply with the minimum CAR requirement, it must notify the CBB by no later than the following business day of the actual level of the CAR. When providing such notification, thelicensee must:(a) Provide to the CBB, within one week of the non-compliance, a written action plan setting out how thelicensee proposes to restore its CAR to the required minimum level and describe the systems and controls that have been put in place to prevent any future non-compliance of the minimum CAR; and(b) Report to the CBB on a monthly basis or on another timely basis as required by the CBB, thelicensee's CAR until such time as the CAR has reached 12.5% or other target level as specified by the CBB.Amended: January 2019
January 2014CA-1.1.7
Licensees should note that the CBB considers the breach of the minimum CAR requirement to be a very serious matter. Consequently, the CBB may (at its discretion) subject alicensee which breaches its minimum CAR requirement to a formal enforcement action.Amended: January 2019
January 2014Deleted
Compliance Officer
CA-1.1.8
Compliance officers must ensure that the
licensee has adequate internal systems and controls to comply with this Module.Amended: January 2019
January 2014Reporting Requirements
CA-1.1.9
The
licensee must report its capital level and CAR to the CBB in accordance with the requirements outlined in Chapter BR-1.Amended: January 2019
January 2014CA-1.2 CA-1.2 Liquidity Requirements
CA-1.2.1
A
licensee's net liquid assets must be held in a form acceptable to the CBB, in a minimum amount of three months estimated expenditures including salaries, rent, general utilities and other operating costs.January 2014CA-1.2.2
For purposes of Paragraph CA-1.2.1, net liquid assets comprise of unencumbered cash, cash equivalents, treasury bills, and placements and balances with banks maturing within 30 days less any liabilities due within 30 days.
January 2014
