Credit risk

SAMA proposes to make available the IRB and Standardized Approaches. SAMA anticipates, however, that while majority of banks incorporated in Saudi Arabia would initially implement the Standardized Approach, foreign joint venture banks and other Saudi banks would eventually implement the FIRB and eventually AIRB approaches.

Banks planning to implement the Foundation IRB: SAMA expects banks to develop historical data and to create internal rating systems that will permit them to use the Foundation IRB approach.

Banks planning to implement the Advanced IRB: Some banks may wish to develop data and systems to implement Advanced IRB Approach. Such plans will be encouraged and the IRB models to be used will be agreed with SAMA on a case-by-case basis.

Branches of Foreign Banks

A branch of a foreign bank may be permitted to use its parent’s IRB methodology subject to SAMA’s approval. SAMA’s approval process would consider, among other things, the implementing strategies, options and procedures of home supervisory authorities and the appropriateness, for the Saudi marketplace, of the data and experience used to calculate the branch IRB capital requirements.

Operational Risk

SAMA proposes to permit banks operating in Saudi Arabia to implement any one of the following four approaches for measuring operational risk: the Basic Indicator Approach, the Standardized Approach, the Alternative Standardized Approach and the Advanced Measurement Approach.

Market Risk

Bank should continue to apply SAMA’s circular No. BCS 355 of Dec. 29,2004.

Banks operating in Saudi Arabia must have sound, effective and complete strategies and processes to assess and maintain on an ongoing basis the internal capital that they consider adequate to cover their risks. They must perform regular internal reviews of these strategies and processes to ensure that they are proportionate to the nature, scale and complexity of their activities.

SAMA will review and evaluate the risks to which the banks are or might be exposed. Based upon these reviews and evaluations it will determine whether such arrangements and capital levels ensure sound management and coverage of the risks. SAMA will establish the frequency and intensity of these reviews and evaluations, taking into account systemic importance, nature, scale and complexity of banks. It will annually update these reviews and evaluations.