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Treatment of EL and Provisions

Effective from Dec 28 2022 - Dec 27 2022
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15.8As specified in articles 2.2.3 and 4.1.4 – Section A of SAMA Guidance Document Concerning the Implementation of Basel III (Circular No. 341000015689, Date: 19 December 2012), Banks using the IRB approach must compare the total amount of total eligible provisions (as defined in paragraph 15.4) with the total EL amount as calculated within the IRB approach (as defined in paragraph 15.2). In addition, article 2.2.3 in the aforementioned rules outlines the treatment for that portion of a bank that is subject to the standardized approach for credit risk when the bank uses both the standardized and IRB approaches.
 
15.9Where the calculated EL amount is lower than the total eligible provisions of the bank, SAMA will consider whether the EL fully reflects the conditions in the market in which it operates before allowing the difference to be included in Tier 2 capital. If specific provisions exceed the EL amount on defaulted assets this assessment also needs to be made before using the difference to offset the EL amount on non-defaulted assets.