The Central Bank of Bahrain (CBB) issued Circular OG/431/2020 (New Circular) implementing further updates to existing regulatory measures previously enacted by the CBB to limit economic repercussions of COVID-19.
The measures set out in the New Circular intend to enable the CBB to continue to manage the effects of COVID-19. The mandatory measures introduced by the CBB that are of key interest to banks, financing companies, microfinance companies and payment services providers (“Affected Licensees”) are:
- Granting customers a six-month deferment option (Deferment Option) effective from 1st January 2021 on loan installments without any fee, or increase to the installment amount or interest/profit rates. The extended term of the loan must take into consideration the additional interest/profit to be charged resulting from the exercise of the Deferment Option. It is important to note that the requirement to extend the Deferment Option to customers of Affected Licensees does not extend to Stage 3 non-performing individuals and corporate customers residing in the Kingdom of Bahrain.
- Extending the Deferment Option to include discounted cheque facilities (subject to receiving new cheques) and to progress payment discounting facilities (if payment is not received), but excluding the following exposures of Affected Licensees: (i) credit cards; (ii) financing installments received through court (excluding ones agreed in court settlements); (iii) credit syndication facilities to resident corporates involving non-resident participating lenders; and (iv) pre-export financing under letters of credit without recourse to the resident corporate exporter.
The New Circular requires Affected Licensees to take the following steps:
- Inform affected customers opting for the Deferment Option of the resulting changes to the term, the aggregate outstanding and the additional interest/profit amount in accordance with the guidelines issued by the Bahrain Association of Banks.
- Continue to apply existing concessionary measures adopted by the CBB in Circular OG/296/2020 concerning (among other things) reduced levels of liquidity coverage ratios, net stable funding ratios, SMEs risk weight, cash reserve ratio, merchant fees, and cooling off period for transferring exposures from Stage 3 to Stage 2.
Nezar Raees Associates’ Banking and Finance team has been proactively working with banks and other financial institutions in analysing the impact of the recent CBB Circulars concerning the COVID-19 pandemic.
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