The Central Bank of Bahrain issues a circular to defer instalments for a further 6 months

The Central Bank of Bahrain (“CBB”) has implemented various regulatory measures to limit the economic repercussions of the Covid-19 pandemic including issuing circular number OG/106/2020 dated 17 March 2020, circular number EDBS/KH/C/30/2020 dated 23 March 2020 and circular number OG296/2020 dated 26 August 2020 (collectively the “Previous CBB Circulars”) pursuant to which, amongst other things, all retail banks were required to offer all Kingdom of Bahrain (“Bahrain”) citizens and resident financial and non-financial companies in Bahrain, excluding banks, initially a six (6) months deferral of instalments which was then extended to 31 December 2020 without any fees, no interest on interest and no increase in rate unless the borrower agreed to a shorter period or did not wish to avail such deferral.

Consistent with the Previous CBB Circulars the CBB has issued circular number OG/431/2020 dated 29 December 2020 (“Latest CBB Circular”). In this alert, we will provide an overview of the Latest CBB Circular.

Relevant Entities

The Latest CBB Circular applies to all CBB licensed:

• banks;
• financing companies;
• microfinance companies; and
• payment services providers,

in Bahrain (collectively hereinafter referred to as the “Relevant Entities” and individually a “Relevant Entity”).

Measures prescribed by the Latest CBB Circular

Under the Latest CBB Circular the Relevant Entities have been directed to:

• extend the option to defer loan instalments for another six (6) months starting from and including 1 January 2021. The term of the loan can be extended but the instalment amount must remain the same. The Relevant Entities have been directed not to increase the interest and profit rates, not to charge any additional fees or commission for offering this deferral option to customers and ensure that the same terms and conditions continue as per the original agreement with customers;
• inform its customers about the resulting changes in the term of any facility, the aggregate amount outstanding and the additional profit or interest amount the customer will be charged;
• include discounted cheque facilities in the deferral opinion subject to receiving new cheques and any progress payment discounting facilities should also be included if payment is not received;
• exclude:
  • credit card payments;
  • financing instalments received through court (not including instalments that are arranged through courts);
  • credit syndication facilities to resident corporates in Bahrain (involving non-resident participating lenders); and
  • pre-export financing under letters of credit without recourse to the resident corporate (exporter),

from the deferral opinion;

• ensure that all announcements in relation to the deferral of instalments to the public and their customers whether they are made through the press or any other media channel are transparent and clear in nature;
• ensure that the revised limit of fifty Bahraini Dinars (BHD50) in relation to contactless (NFC) transactions on point of sales devices remains unchanged until further notice from the CBB; and
• continue following the existing regulatory measures namely the reduced levels of liquidity cover ratio (LCR), net stable funding ratio (NSFR), small and medium enterprise (SME) risk weight, cash reserve ratio, merchant fees, cooling off period for transferring exposures from stage three (3) to stage two (2), the relaxation concerning the days past due for expected credit loss (ECL) staging criteria from stage one (1) to stage (2) of seventy four (74) days and the relaxation requirement on loan to value (LTV) ratio for residential mortgages until 31 December 2021.

The CBB will re-assess the need to continue with such concessionary measures during 2021 and advise CBB licensees accordingly.

Penalties for non-compliance

In accordance with Article 129 of Law No. 64 of 2006 promulgating the CBB and Financial Intuitions Law, as amended (“CBB Law”), the maximum financial penalty levied for failing to comply with the CBB Law, regulations, directives and other requirements is one hundred thousand Bahraini Dinars (BHD 100,000) per violation. The CBB may opt to limit the amount of the financial penalty and use other enforcement measures including but not limited to issuing a warning, direction, imposing restrictions on a licensee and/or limiting the scope of operations of a licensee.

What should you do next?

If you are a Relevant Entity, it is important for you to:

1. understand the requirements and the obligations to be adhered to ensure that your business is compliant in line with the Latest CBB Circular; and
2. consider devising strategies to reduce financial difficulties for your customers.

How can we help?

Al Tamimi & Company’s Banking and Finance team regularly advises on regulatory matters and is well placed to assess the impact of the Latest CBB Circular on your organisation. If you would like to further discuss the contents of this article and find out what it means for your business, please contact Al Tamimi & Company in Bahrain.