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SAMA views stress testing as an important tool for not only strengthening the risk management frameworks in individual banks but also for assessing the resilience of the overall banking system under stressful conditions. Therefore, in addition to the bottom-up stress testing by banks, SAMA would also conduct Top-Down stress tests. For this purpose, it has adopted a holistic approach comprising of following three key components:
i.
Use of Bottom-up Stress Testing Results: Banks are required to submit their bottom-up stress testing results to SAMA which will be used by it in identifying and analyzing the potential vulnerabilities in the banking system and their systemic implications;
ii.
Requiring Banks to Run Specified Scenarios: SAMA may require banks to run the specified scenarios on their portfolios to assess the plausibility of certain events. In this regard, SAMA may require banks from time to time to conduct specified sensitivity tests for individual businesses/portfolio segments or scenario tests on the overall portfolio. Banks are required to submit the results of such tests to SAMA in the prescribed manner. These results may be used by SAMA to assess vulnerabilities in the banking system;
iii.
System-wide Stress Testing: SAMA may conduct its own stress tests based on the macro-economic data available with it and the banking data collected from banks.
Based on the findings of its Top-Down stress tests and supervisory reviews SAMA may provide additional guidance to banks on their stress testing programs during bilateral meetings on their ICAAPs or through separate communications.
