5.5 Stress-Testing
Effective from 2020-10-17 - Oct 16 2020
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| Banks should conduct a comprehensive, robust stress-testing that is consistent with SAMA Stress-testing Rules, taking into consideration the following: | |
| i. | The impact of a range of severe but plausible stress scenarios on the bank’s cash flows, liquidity resources, profitability, solvency, asset encumbrance and survival horizon. |
| ii. | Selecting stress scenarios that reveal the vulnerabilities of the bank’s funding. In addition to performing a tailored and in-depth review of the bank’s vulnerabilities, capturing all material risks on an institution-wide basis that result from the bank’s business model and operating environment in the context of stressed macroeconomic and financial conditions. The review should be conducted on a yearly basis and more frequently, when necessary, depending on individual circumstances. On the basis of this review, the bank is required to define an adequate stress-testing programme for both normative and economic perspectives. As part of the stress-testing programme, the bank is required to determine adverse scenarios to be used under both perspectives, taking into account other stress-tests it conducts. |
| iii. | Conducting reverse stress-testing in a proportionate manner. |
| iv. | Continuously monitoring and identifying new threats, vulnerabilities and changes in its environment to assess whether its stress-testing scenarios remain appropriate and, if not, adapt them to the new circumstances. |
| v. | Regularly updating the impact of the scenarios. In the case of material changes, the bank should assess its potential impact on its liquidity adequacy. |
| The degree of conservatism of the stress-testing scenarios adopted and assumptions made by the bank should be discussed in the ILAAP document. | |