Rules on Large Exposures and Credit Risk Concentration for Banks

Summary

This document sets out CIMA's binding Rules on Large Exposures and Credit Risk Concentration for banks, issued under the Monetary Authority Law and meant to be read together with the related Statement of Guidance. It applies to all banks licensed under the Banks and Trust Companies Law, both on a solo (unconsolidated) and consolidated basis, and defines key concepts such as 'large exposure' (an exposure exceeding 10% of a bank's capital base), 'related counterparty,' 'group of connected counterparties,' and 'capital base.'

Core Requirements for Banks

Policies and controls: Banks (other than branches) must adopt board-approved policies on large exposures and credit risk concentration, maintain systems and controls to monitor and limit exposures, designate an independent officer/unit for monitoring, and conduct regular independent reviews.
Single counterparty/connected group cap: 25% of capital base, absent Authority approval.
Aggregate large exposures cap: 800% of capital base.
Related-party exposure caps: 25% (all related counterparties), 1% (unsecured, per group under Rule 4.8(c)/(d)), and 5% (unsecured, all such related counterparties).
Exemptions: Specific exemptions and partial exemptions apply for cash-secured and securities-secured exposures and for certain Zone A/B sovereign, interbank, and treasury-role exposures, subject to conditions.

Treatment of Bank Branches

Bank branches (of foreign-incorporated banks) are subject to a separate, lighter regime: they must report their 20 largest exposures and generally follow head-office limits, unless CIMA determines the head office policy is inadequate, in which case CIMA may apply the Rule 5 requirements to the branch.

Banks must notify CIMA immediately of any breach of the limits and take immediate corrective action, and CIMA retains discretion to vary limits, restrict exemptions, or impose additional country/sector exposure restrictions, with breaches handled under CIMA's Enforcement Manual and applicable law.

Key obligations

The board of directors of a bank (other than a branch) must establish, maintain, and provide to the Authority a written policy on large exposures and credit risk concentration.
A bank must adopt internal policies and limits to ensure compliance with the exposure limits in Rules 5.8-5.17.
A bank must maintain adequate information systems to identify and measure large exposures and detect breaches.
Any breach of the Rules must be reported directly to the bank's board of directors and/or audit committee.
A bank must assign a designated independent unit or officer (e.g., compliance officer) to monitor large exposures.
A bank must ensure regular independent reviews are conducted to verify adherence to large exposure policies, limits, and procedures.
A bank must report all large exposures quarterly on the Authority's Form BS and schedules.
A bank must not incur exposure to an individual counterparty or group of connected counterparties exceeding 25% of its capital base without prior written approval of the Authority.
Total large exposures (non-exempt) must not exceed 800% of the bank's capital base without prior written Authority approval.
Total exposures to related counterparties must not exceed 25% of the bank's capital base.
Unsecured exposures to any one group of related counterparties (as defined in Rule 4.8(c)/(d)) must not exceed 1% of capital base.
Total unsecured exposures to all related counterparties (Rule 4.8(c)/(d)) must not exceed 5% of capital base.
Where an exposure is guaranteed by another bank to exceed the 25% single exposure limit, the bank must pre-notify the Authority and satisfy the conditions in Rule 5.15 before the guarantee arrangement can be relied upon, and Authority approval is required.
A bank relying on cash or securities collateral to exempt an exposure from the 25% limit must meet the specified conditions (matching currency/country, maturity, legal opinions on set-off, marked-to-market collateral thresholds).
A bank must notify the Authority immediately of any breach of the limits imposed by the Rules.
A bank must take immediate action to bring an exposure within permitted limits as soon as possible after a breach.
A bank branch must report its twenty largest exposures on the Authority's Form BS and schedules.
A bank branch must comply with the large exposure limits established by its head office, or, if the Authority finds the head office policy inadequate, comply with any of the Rule 5 requirements as directed by the Authority.

Applies to

banks, bank branches

Deadlines

quarterly: Banks (other than branches) must report all large exposures quarterly on the Authority's Form BS and schedules (Rule 5.7).
immediately: A bank must notify the Authority immediately of any breach of the exposure limits (Rule 5.19).
immediately/as soon as possible: A bank must take immediate action to bring an exposure within permitted limits as soon as possible after a breach (Rule 5.20).