Macroprudential Policy
Countercyclical Capital Buffer (CCyB) in Saudi Arabia
History and background
In 2010, the Basel Committee on Banking Supervision (BCBS) released the Basel III capital standards, which contained detailed information about CCyB. This was followed by additional information on procedures for operating this buffer.
The CCyB aims to ensure that banking sector's capital requirements take account of the macro-financial environment in which the banks operate. Its primary objective is to achieve a broader macro prudential goal of protecting the banking sector from periods of excessive aggregate credit growth that have often been associated with the build-up of system-wide risk. In downturn environment, the release of this buffer should help to reduce the risk of undermining the performance of the real economy and additional credit losses in the banking system.
Calculation
The Countercyclical Capital Buffer varies between 0% and 2.5% to total risk weighted assets and is calculated as the weighted average of the buffers in effect in the jurisdictions in which the banks have a credit exposure.
Timeline
All banks in Saudi Arabia should use the buffer rate for each country (including Saudi Arabia) for the calculation of CCyB from 1 January 2016.
Periodic announcement
Countercyclical buffer rate for Saudi Arabia will be pre-announced by SAMA at least one year in advance. While increases in buffer rate becomes effective one year after the date of announcement of the increase, decreases will take effect immediately as of the date of announcement. However, in case of any immediate changes foreseen, SAMA will make the changes in the buffer rate more frequently.
Methodology
Credit-to-GDP gap (point in time and longer term trend) as proposed by the Basel Committee has been taken by SAMA as the main indicator for the calculation of countercyclical buffer rate. However, in future, SAMA could also include additional indicators relating to the financial system and may revise the current methodology, if needed.
Calculation of bank-specific countercyclical capital buffer
1) Reciprocity is an important basis for the calculation of bank-specific countercyclical capital buffer based on location of exposures in different countries. However, this arrangement is valid mainly for Basel Committee member countries and countercyclical capital buffer rates implemented in those countries. These rates (along with countercyclical capital buffer for Saudi Arabia) will be available on the Basel Committee website, and should be taken by the banks for the calculations. However, SAMA could determine a more prudent rate for certain countries, if needed. 2) In case, if there is no rate published by the Basel Committee for the country in which the banks have a presence or a position, a maximum buffer rate of 2.5% should be used for that country. 3) Banks should take into account exposures to private sector counterparties, which attract a credit risk capital charge in the banking book, and the risk-weighted equivalent trading book capital charges for specific risk, the incremental risk charge, and securitization. Interbank exposures and exposures to the public sector are excluded while non-bank financial sector exposures should be included in the calculation. 4) Banks should make classification of geographic location according to the criteria of "ultimate risk" i.e. where the final risk lies. 5) Banks should take into account the geographic location of their private sector credit exposures (as explained in 4 above) and calculate their countercyclical capital buffer requirement as a weighted average of the buffers that are being applied in various jurisdictions where they have an exposure. The weighting applied to the buffer in place in each jurisdiction will be the bank's total credit risk charge (as explained in 3 above) that relates to private sector credit exposures in that jurisdiction, divided by the bank's total credit risk charge that relates to private sector credit exposures across all jurisdictions.
Principles and procedures on profit distribution
Banks should continue to seek permission from SAMA before making dividend distribution. In the permission applications, SAMA will also consider Capital Conservation Buffer, Countercyclical Capital Buffers and Domestic Systemically Important Banks Buffer (if applicable).
Buffer rate for Saudi Arabia
For the year 2016, SAMA has computed 0% as a buffer rate for Saudi Arabia based on the methodology as already explained, which will also be published on the dedicated Basel webpage. Banks will be notified a year in advance if there were any changes in the future.
For further details, banks should access the BCBS document on Countercyclical Capital Buffer from BIS website.
A Framework for Dealing with Domestic Systemically Important Banks in Saudi Arabia
No: 351000138356 Date(g): 6/9/2014 | Date(h): 12/11/1435 Status: In-Force In order to identify and designate D-SIBs in Saudi Arabia, SAMA has developed the enclosed assessment methodology providing for an indicator-based measurement approach. This methodology takes into account the size, interconnectedness, substitutability and complexity of a bank while determining its systemic importance. The enclosed methodology will be implemented effective from 1st January 2016. Accordingly, banks designated as D-SIBs will be required to meet additional Higher Loss Absorbency(HLA) capital requirements as prescribed in the enclosed methodology.
I. Introduction
1. The Basel Committee on Banking Supervision (BCBS) in November 2011 issued the rules text on the assessment methodology for global systemically important banks (G-SIBs) and the additional loss absorbency requirements over and above the Basel III requirements that have been introduced for all internationally active banks. The G20 leaders also asked the BCBS and the Financial Stability Board (FSB) to work on modalities to extend expeditiously the G-SIFI framework to domestic systemically important banks (D-SIBs).
2. Accordingly, the BCBS developed assessment methodology to identify and designate D-SIB banks in the domestic economies of National Jurisdictions. In this context, the assessment methodology for D-SIB should reflect the potential impact of, or externality imposed by, a bank’s failure on the domestic economy and potentially any impact on cross-border externalities posed by the institution.
3. In this regard, SAMA has developed an assessment methodology based on an indicator-based measurement approach for assessing and designating D-SIBs in Saudi Arabia that is consistent with the BCBS D- SIB assessment methodology. The selected indicators are chosen and calibrated to reflect the different aspects and operational dynamics of the Saudi Arabian Banking System that generates negative externalities and makes a bank critical for the stability of the financial system. Further. SAMA's assessment considers bank-specific characteristics of systemic importance such as size, interconnectedness, substitutability, and complexity, which are correlated with the systemic impact of failure.
II. The Assessment Methodology
4. The assessment methodology for D-SIBs reflects the potential impact of, or externality imposed by, a bank's failure. Thus, the reference system for assessing the impact of failure by D-SIBs is the domestic economy.
5. The impact of a D-SIB's failure on the domestic economy, or the assessment and designation of D-SIBs in Saudi Arabia should, in principle, be assessed annually having regard to bank-specific factors combined with SAMA's discretion (based on supervisory judgment). Thus, the assessment and designation process for D-SIB’s by SAMA will take place in February of each year based on end year data.
6. D-SIB’s identified and designated by SAMA under this methodology will be required to comply with the Higher Loss Absorbency (HLA) measures with effect from January 2016.
7. The bank’s degree of systemic importance should be assessed at a consolidated level. The methodology of designation for the D-SIBs in Saudi Arabia is based on four categories with different weights, and each category weight differs, based on the sub-category that has the:
I. Size of the bank as total exposures, as measured in the leverage ratio under Basel III.
II. Interconnectedness of the bank vis-à-vis other financial institutions; the three indicators are used to measure interconnectedness: (i) intra-financial system assets, (ii) intra-financial system liabilities, and (iii) total marketable securities.
III. Complexity of the bank by measuring the notional amount of over-the-counter derivatives (OTC).
IV. Substitutability which relates to the bank’s activities and implications of its failure.
Below is a table that shows each category with its sub-category and weights:
Category (and weighting) Individual Indicator Indicator weighting Size (30%) Total exposure as defined for use in the Basel III leverage ratio 30% Intra-financial system assets: due from commercial banks, specialized banks, and other financial institutions. 10% Interconnectedness (30%) Intra-financial system liabilities: due to commercial banks, specialized banks, and other financial institutions. 10% Total Marketable securities 10% Complexity (10%) OTC derivatives notional value 10% Substitutability (30%) Payments cleared and settled 30 through payment system 30% 4 categories 6 indicators 100% III. The Scoring and Bucketing
8. After calculating scores for banks, banks with a score above a certain level (the cut-off score) will automatically be classified as D-SIBs. Also, SAMA at its discretion and using supervisory judgment may decide to add banks with scores below the cut-off score to the list of D-SIBs.
9. There will be four buckets between the cut-off score and one more bucket on top (4+1). D-SIB's will be allocated to a bucket based on their scores.
Bucket Bucket Scoring 1 X*~15.0% 2 15.1%~20.0% 3 20.1%~25.0% 4 20.1%~25.0% 5 30.1%~100% *X: refer to the cut-off score and equal to 10%.
IV. Higher Loss Absorbency (HLA)
10. The purpose of an HLA requirement for D-SIBs is to reduce further the probability of failure compared to non-systemic institutions, reflecting the greater impact a D-SIB failure is expected to have on the domestic financial system and economy.
11. The HLA requirement imposed on a bank is commensurate with the degree of systemic importance, as identified under the assessment and designation process. Also, the HLA requirement should be met fully by common equity Tier 1 (CET1).
12. The HLA requirement imposed on a bank will be in addition to the target CAR determined by SAMA based on the risk profile of the concerned bank. The HLA capital charge will be calculated by SAMA based on the bank's degree of systemic importance determined in the scoring exercise and each bank will be allocated to a bucket based on its scores.
13. In addition, SAMA may put in place any additional requirements and other policy measures it considers to be appropriate to address the risks posed by a D-SIB including Recovery and Resolution Plans and other measures as deemed appropriate. Accordingly, SAMA will ensure that banks with same degree of systemic importance in Saudi Arabia are subject to the same HLA requirements.
V. Buckets and HLA Requirements
Bucket Bucket Score Higher Loss Absorbency requirement (common equity tier 1 as percentage of Risk-Weighted Assets) 1 10.0%~15.0% 0.5% 2 15.1%~20.0% 1.0% 3 20.1%~25.0% 1.5% 4 25.1%~30.0% 2.0% 5 30.1%~100% 2.5% Domestic Systemically Important Banks (D-SIBs)
In reference to SAMA circular No. (351000138356), dated 12/11/1435H, regarding the methodology to identifying Domestic Systemically Important Banks (D-SIBs) and their capital requirements, below is the list of domestic systemically important banks (D-SIBs) which has been identified in accordance with the approved methodology as per the aforementioned circular. Four indicators with different weights were used: Size, Interconnectedness, Complexity, and Substitutability.
List of Domestic Systemically Important Banks (D-SIBs) for the year 2024.No. Bank 1 Saudi National Bank 2 Al Rajhi Bank 3 Riyad Bank 4 Saudi Awwal Bank (SAB) 5 Bank Saudi Fransi (BSF) In Accordance with circular No. (45056508), dated 02/09/1445H.
List of Domestic Systemically Important Banks (D-SIBs) for the year 2023.No. Bank 1 Saudi National Bank 2 Al Rajhi Bank 3 Riyad Bank 4 Saudi British Bank (SABB) 5 Bank Saudi Fransi (BSF) In Accordance with circular No. (44062624), dated 06/08/1444H.
List of Domestic Systemically Important Banks (D-SIBs) for the year 2022.No. Bank 1 Saudi National Bank 2 Al Rajhi Bank 3 Riyad Bank 4 Saudi British Bank (SABB) 5 Bank Saudi Fransi (BSF) In Accordance with circular No. (43077421), dated 05/09/1443H.
List of Domestic Systemically Important Banks (D-SIBs) for the year 2021.No. Bank 1 Saudi National Bank 2 Al Rajhi Bank 3 Riyad Bank 4 Saudi British Bank (SABB) 5 Bank Saudi Fransi (BSF) In Accordance with circular No. (43001662), dated 07/01/1443H.
List of Domestic Systemically Important Banks (D-SIBs) for the year 2020.No. Bank 1 National Commercial bank 2 Samba Financial Group 3 Al Rajhi Bank 4 Saudi British Bank (SABB) 5 Riyad Bank 6 Bank Saudi Fransi (BSF) In Accordance with circular No. (41062602), dated 04/11/1441H.
List of Domestic Systemically Important Banks (D-SIBs) for the year 2019.No. Bank 1 National Commercial bank 2 Samba Financial Group 3 Al Rajhi Bank 4 Bank Saudi Fransi (BSF) 5 Riyad Bank 6 Saudi British Bank (SABB) In Accordance with circular No. (67/56165), dated 09/09/1440H.
List of Domestic Systemically Important Banks (D-SIBs) for the year 2018.No. Bank 1 National Commercial bank 2 Samba Financial Group 3 Riyad Bank 4 Bank Saudi Fransi (BSF) 5 Saudi British Bank (SABB) 6 Al Rajhi Bank In Accordance with circular No. (391000089191), dated 17/08/1439H.
List of Domestic Systemically Important Banks (D-SIBs) for the year 2017.No. Bank 1 National Commercial bank 2 Samba Financial Group 3 Al Rajhi Bank 4 Bank Saudi Fransi (BSF) 5 Riyad Bank 6 Saudi British Bank (SABB) In Accordance with circular No. (381000082448), dated 06/08/1438H.
Statutory Deposit Recognition in Liquidity Reserves Ratio
In reference to Article 7 of Banking Control Law, which states that every bank is required to maintain with SAMA, at all times, a statutory deposit of a sum not less than fifteen percent of its deposit liabilities, which has been reduced to (4%) for time and savings deposits and (7%) for demand deposits. Article 7 also introduced liquidity reserve ratio which is currently at (20%) of deposit liabilities.
To better align liquidity reserve ratio with Basel's Liquidity Coverage Ratio, SAMA is requiring the recognition of the statutory deposit in the calculation of the liquidity reserve ratio. The Statutory Reserves balance should be reported in line item "Due from SAMA- other up to 30 days" of M6-2 return, effective immediately.
Please be advised this requirement is effective immediately.