The following guidelines to be included in Pg 6 Section 3.3 “ICAAP as a part of Pillar 2” of the SAMA’s Guidelines Document on the Internal Capital Adequacy Assessment Plan, 2008
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(In addition to the original text)
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Interest rate risk in the banking book:
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The measurement process should include all material interest rate positions of the bank and consider all relevant repricing and maturity data. Such information will generally include current balance and contractual rate of interest associated with the instruments and portfolios, principal payments, interest reset dates, maturities, the rate index used for repricing, and contractual interest rate ceilings or floors for adjustable-rate items. The system should also have well- documented assumptions and techniques.
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Regardless of the type and level of complexity of the measurement system used, bank management should ensure the adequacy and completeness of the system. Because the quality and reliability of the measurement system is largely dependent on the quality of the data and various assumptions used in the model, management should give particular attention to these items.
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(Refer to Paragraph 739-740 of of International Convergence of Capital Measurement and Capital Standards – June 2006)
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The following guidelines to be included in Pg 6 Section 3.3 “ICAAP as a part of Pillar 2” of the SAMA’s Guidelines Document on the Internal Capital Adequacy Assessment Plan, 2008
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(In addition to the original text)
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Liquidity risk: Liquidity is crucial to the ongoing viability of any banking organization. Banks‘capital positions can have an effect on their ability to obtain liquidity, especially in a crisis. Each bank must have adequate systems for measuring, monitoring and controlling liquidity risk. Banks should evaluate the adequacy of capital given their own liquidity profile and the liquidity of the markets in which they operate.
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(Refer to Paragraph 741 of of International Convergence of Capital Measurement and Capital Standards – June 2006)
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The following guidelines to be included in Pg 19 Section 11 “Challenge and Adoption of the ICAAP” of the SAMA’s Guidelines Document on the Internal Capital Adequacy Assessment Plan, 2008
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(In addition to the original text)
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Internal control review
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The bank should conduct periodic reviews of its risk management process to ensure its integrity, accuracy, and reasonableness. Areas that should be reviewed include:
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| • | Appropriateness of the bank‘s capital assessment process given the nature, scope and complexity of its activities;
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| • | Identification of large exposures and risk concentrations;
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| • | Accuracy and completeness of data inputs into the bank‘s assessment process;
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| • | Reasonableness and validity of scenarios used in the assessment process; and
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| • | Stress testing and analysis of assumptions and inputs.
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(Refer to Paragraph 745 of of International Convergence of Capital Measurement and Capital Standards – June 2006)
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The following guidelines to be included in Pg 16 Section “Risk Covered in the ICAAP” of the SAMA’s Guidelines Document on the Internal Capital Adequacy Assessment Plan, 2008
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(In addition to the original text)
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Risk Covered in the ICAAP
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SAMA recognizes banks' internal systems as the principal tool for the measurement of interest rate risk in the banking book and the supervisory response. To facilitate SAMA‘s monitoring of interest rate risk exposures across institutions, banks would have to provide the results of their internal measurement systems, expressed in terms of economic value relative to capital, using a standardized interest rate shock.
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(Refer to Paragraph 763 of International Convergence of Capital Measurement and Capital Standards – June 2006)
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