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5.2 Strategic and Capital Planning in the ICAAP Process
No: 291000000581
Date(g): 22/9/2008 | Date(h): 23/9/1429
Status: Modified
Effective from Jan 31 2009 - Jan 30 2009 To view other versions open the versions tab on the right
As a part of the ICAAP process, the board of directors and senior management must also establish clear goals with respect to the long-term level and composition of capital and integrate it as an element in the bank's strategic planning. There must also be a preparedness to handle unforeseen events that may detrimentally affect the capital adequacy situation.
Consequently, bank's senior management as a significant responsibility must have a process for assessing its capital adequacy relative to its risk profile. In this regard, the ICAAP’s design should be in congruence with a bank's capital policy and strategy. Further, it should be fully documented.
The initial point for a bank's capital requirement and strategic plans must be to identify all of the risks to which it is exposed and which may be of significance. Also, the object is that a well thought-out and a clear decision emerges as to how these risks are to be managed. This requires an approach which includes an assessment of the following:
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The various markets in which the bank operates;
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The products it offers;
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The organizational structure;
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Its financial position;
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Its experience from various disruptions and problems previously experienced, and assessments of what might happen to the banks if risk materializes;
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Strategies, plans and ideas about entering new markets or product areas must also be considered.
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Reviews and analyses of data as well as qualitative assessments.
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For the complex banks, this entails extensive reviews of the risks to which it is exposed on a continuing basis. Stress tests/sensitivity analyses are required in order to be able to measure the effects of a particular disruption. Regular analysis and assessments are required of the manner in which risks are managed, controlled and quantified and how they should be managed in the future. It is also important to identify the connections and links such as co-relations, which may exist between various types of risks. This should lead to a bank's capital requirements including any additional control measures.
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For a bank with more straight forward operations, the analysis work is obviously simpler as there are fewer and less significant factors. On the other hand, this does not mean that a more limited operation with respect to breadth or range or the total turnover of the business is automatically less risky.
A complex operation with many branches of business may involve difficulties in achieving a comprehensive grasp of the total risk structure, as well as of all the factors that affect it. In a more limited operation, the negative aspect is the risks arise from being more dependent on one or a small number of products, perhaps on a limited number of customers and perhaps within a limited geographical area. For such operations, it may also be more difficult to raise capital rapidly at a reasonable cost.
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