Regulatory Alerts2014-07-31
Changes to Internal Rating Systems for Calculating Minimum Required Capital for Credit Risk
The South African Reserve Bank’s Office of the Registrar of Banks has issued revised regulatory requirements mandating that Internal Ratings-Based (IRB) banks obtain prior written approval before implementing material changes to their credit risk rating systems. Materiality is determined through qualitative assessments, such as new methodologies or default definition changes, and quantitative thresholds requiring approval if a change impacts at least one percent of total banking group risk-weighted assets or ten percent of a specific portfolio’s assets. The directive also standardizes notification procedures for non-material changes, enforces strict documentation and communication policies, and requires biannual updates to ensure ongoing supervisory oversight of capital calculations.