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    CBB Consults on Liquidity Risk Module and SME Financing Requirements

    March 25, 2021

    CBB proposed requirements on financing for small and medium-size enterprises (SMEs), the consultation period for which ends on April 01, 2021. As part of this consultation, CBB proposed to require all retail banks to ensure (incrementally), by December 31, 2025, that financing for SMEs accounts for at least 20% of their domestic financing portfolio and to create a separate department or unit that is dedicated to SME financing. CBB also launched a consultation to amend the liquidity risk management module (Module LM) of the Rulebook for both conventional (Volume 1) and Islamic (Volume 2) banks; the comment period for this consultation ends on April 22, 2021.

    With respect to the enhancement of liquidity risk requirements, CBB proposed to introduce a new chapter on "Loan to Deposit Ratio" within Module LM of the CBB Rulebook Volume 1 for conventional retail bank licensees. Conventional retail bank licensees must ensure that their loan-to-deposit ratio does not exceed 75% percent at all times. Bahraini conventional retail bank licensees must compute the ratios on a “solo” basis and on a “consolidated” basis. Branches of foreign banks must compute this ratio for the Bahrain operations (that is, on a “branch level” basis). The ratios must be computed using the month end balances. If a breach of the loan-to-deposit ratio is observed due to unexpected withdrawals of nonbank deposits, the conventional retail bank licensee must notify CBB immediately and present a plan within 14 calendar days describing the measures it will take to restore the LTD ratio to be within 75%. Conventional retail bank licensees must report their loan-to-deposit ratios on a quarterly basis in their PIR reports. 

    With respect to Rulebook Volume 2 for Islamic retail bank licensees, CBB proposed to introduce, to Module LM, a chapter on "Financing to URIA and Current Account Ratio." These banks must ensure that their financing to Unrestricted Investment Account (URIA) and current account (FTUCA) ratio does not exceed 75% at all times. Bahraini Islamic retail bank licensees must compute the ratios on a “solo” basis and on a “consolidated” basis. Branches of foreign banks must compute this ratio for the Bahrain operations. The ratios must be computed using the month-end balances. If a breach of the FTUCA ratio is observed due to unexpected withdrawals of URIAs and current accounts, the Islamic retail bank licensee must notify CBB immediately and present a plan within 14 calendar days describing the measures it will take to restore FTUCA ratio to be within 75%. Islamic retail bank licensees must report their FTUCA ratios on a quarterly basis in their PIRI reports.

     

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    Comment Due Date: April 22, 2021 (Module LM)/April 01, 2021 (SME Financing)

    Keywords: Middle East and Africa, Bahrain, Banking, Islamic Banking, Module LM, Liquidity Risk, Loan-to-Deposit Ratio, ALM, Basel, Reporting, SME Financing, CBB

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