DUBAI May 28 Bahrain has become the first
country in the Gulf outside Saudi Arabia to clarify its
treatment of capital-boosting instruments under Basel III rules,
saying the instruments must include loss absorption features.
Its decision, which is in line with Saudi Arabia, a member
of the committee which drafted Basel III, could influence
regulators in other Gulf states that have not yet clarified
their stance, such as the United Arab Emirates and Qatar.
Banks across the Gulf have been waiting for regulatory
guidance on how subordinated debt instruments will be treated
under Basel III, a set of stricter banking rules which are being
phased in around the world over the next several years.
It is up to each national regulator to decide how to
interpret the rules; Bahrain's central bank has drafted separate
rule books for conventional and Islamic banks, proposing they
both come into effect in January 2015.
Its rules detail the treatment of subsidiaries when
calculating a bank's capital adequacy requirements and explain
the use of subordinated debt, which can count towards Tier 1
core or Tier 2 supplementary capital.
Loss absorption is a requirement for capital-boosting
instruments to be converted into equity if the issuer faces
insolvency. Bahrain would require Tier 1 instruments to absorb
losses either by converting them into common shares, or through
a gradual write-down mechanism which forces losses on holders of
the instruments in stages.
So far, Bahraini banks have not issued subordinated debt, in
part because of a lack of regulatory guidance. Saudi Arabian
banks have seen a flurry of such issuance since last year, when
the regulator started implementing Basel III.
(Editing by Andrew Torchia)