5. Capital Adequacy and ICAAP
| No: 581 | Date(g): 22/9/2008 | Date(h): 23/9/1429 |
Effective from Jan 31 2009 - Jan 30 2009
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This section should include the following:
Disclosure of various types of Capital
| An ICAAP establishes a framework for economic, legal, regulatory and accounting capital purposes and helps identify planned sources of capital to meet these needs. Consequently, this section should provide a distinction from the bank's perspective of the following capital classification indicating their purpose, minimum requirements and other attributes. | ||
| 1. | Regulatory Capital | |
| 2. | Accounting Capital | |
| 3. | Legal Capital | |
| 4. | Economic Capital (if relevant) | |
| Additionally, a bank will need to describe its position with respect to its definition, assimilation and usage within the bank's risk and performance assessment framework. | ||
| Consequently, this section should elaborate on the bank's view of the amount of capital it requires to meet its minimum regulatory needs and disclosure requirements under International Accounting Standards, or whether what is being presented is the amount of capital that a bank believes it needs to meet its strategic business objectives, external ratings, and a support for a dividend policy from a shareholders perspective, etc. For example, whether the capital required is based on a particular desired credit rating or includes buffers for strategic purposes or to minimize the charge for breaching regulatory requirements. Where economic capital models are used this would include the time horizon, economic description, scenario analyses, etc. including a description of how the severity of scenarios have been chosen. | ||
Timing of the ICAAP
Generally, the ICAAP is prepared on an annual basis as at the end of each calendar year, i.e. 31 December 2008 (and is due in SAMA as at 31 January of the following year). However, should there be any variation to this timing, additional details will need to be provided. This will include the reasons for the effective date of the ICAAP. Other information to be provided will also include an analysis and consideration for any events between the effective date and the date of submission which could materially impact the ICAAP and the rationale for the time period over which ICAAP has been assessed.
Risk Covered in the ICAAP
| An identification and appropriate description of the major risks faced in each of the following categories: | |
| ■ | Credit Risk (Additional to Pillar 1) |
| ■ | Market Risk (Additional to Pillar 1) |
| ■ | Operational Risk (Additional to Pillar 1) |
| ■ | Liquidity Risk |
| ■ | Concentration Risk |
| ■ | Securitization Risk |
| ■ | Strategic Risk |
| ■ | Interest Rate Risk |
| 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. | |
| (Refer to Paragraph 763 of International Convergence of Capital Measurement and Capital Standards – June 2006) | |
| ■ | Macro Economic and Business Cycle Risk |
| ■ | Reputational Risk |
| ■ | Global Risk |
| ■ | Any other Risks identified |
| ■ | An explanation of how each of the risk has been identified, assessed, measured and the methodology and or models currently or to be employed in the future, and the quantitative results of that assessment; |
| ■ | where relevant, a comparison of that assessment with the results of the pillar 1 calculations; |
| ■ | a clear articulation of the bank's risk appetite by risk category; and |
| ■ | where relevant, an explanation of method used to mitigate these risks. |