Featured Product

    SAMA Issues Basel Rules for Credit Risk Capital, Issues Other Updates

    December 28, 2022

    The Saudi Central Bank (SAMA), earlier known as the Saudi Arabian Monetary Agency, published the final Basel III reforms and the consultations on "instructions" (or guidelines) for practicing financial aggregator services and on an amendment to article (8) of the Implementing Regulation of the Finance Companies Control Law. The proposed change in Article 8 of the aforementioned regulation is to reduce the minimum paid-up capital requirement for a finance company wishing to carry-on finance business for the small and medium enterprises (SMEs). The proposed amendment comes as an initiative by SAMA to develop the SME sector by attracting a new segment of investors to establish finance companies specialized in financing the SMEs. SAMA also granted a license to Manafa, which is fintech that specializes in debt-based crowdfunding and that completed a successful trial run in the regulatory sandbox of SAMA.

    Out of the aforementioned, the key update involves SAMA announcement on the finalization of certain final Basel III reforms and publication of the policy document that covers the revised framework for credit risk and will be applicable to domestic banks as of January 01, 2023. The framework is not applicable to foreign banks’ branches operating in the Kingdom of Saudi Arabia, with the branches expected to comply with the regulatory capital requirements stipulated by their respective home regulators. The Basel Committee on Banking Supervision issued the document Basel III: Finalizing post-crisis reforms in December 2017, which includes among others, the revised framework for credit risk. It covers requirements for both the standardized and internal ratings-based approaches for credit risk and aims to complement the risk-weighted capital ratio with a revised leverage framework and minimum outputs for calculating risk-weighted assets (Output Floors). SAMA also conducted a pilot application of Basel III, which was launched during the second half of 2022, with the participation of all Saudi banks. The pilot application demonstrated the readiness of the banking sector for the official implementation while maintaining stable capital levels, which contributes to achieving SAMA objective to maintain financial stability.

    SAMA expects all banks to report their credit risk-weighted assets and capital charge using the Q17 reporting template within 30 days after the end of each quarter. Banks can choose between two broad methodologies for calculating their risk-based capital requirements for credit risk. The first is the standardized approach, which is set out in chapters 6 to 9. The standardized approach assigns standardized risk-weights to exposures as described in chapter 7. Risk-weighted assets are calculated as the product of the standardized risk-weights and the exposure amount. To determine the risk-weights in the standardized approach for certain exposure classes, banks may, as a starting point, use assessments by external credit assessment institutions (ECAIs) that are recognized as eligible for capital purposes by SAMA. The second risk-weighted assets approach is the internal ratings-based (IRB) approach, which allows banks to use their internal rating systems for credit risk. The IRB approach is set out in chapters 10 to 16 of the published policy document. However, banks must seek regulatory approval from SAMA before they can use the internal ratings-based approach for the calculation of capital requirements for credit risk.


    Related Links 

    Keywords: Middle East and Africa, Saudi Arabia, Banking, Basel, Reporting, Credit Risk, Standardized Approach, IRB Approach, Crowdfunding Service Providers, Fintech, SAMA, Saudi Central Bank

    Featured Experts
    Related Articles

    FINMA Approves Merger of Credit Suisse and UBS

    The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.

    March 21, 2023 WebPage Regulatory News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.

    March 07, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    MFSA Sets Out Supervisory Priorities, Issues Reporting Updates

    The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023

    March 02, 2023 WebPage Regulatory News

    German Regulators Issue Multiple Reporting Updates for Banks

    Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8806