Regulatory Alerts2018-04-12
Responding to banks’ inquiries regarding the pilot application of the IFRS9 standard
The Saudi Central Bank (SAMA) has issued a set of regulations to enhance the transparency and financial stability in the banking sector. These guidelines are aligned with the Basel III accords and other international best practices for prudential regulation, which aim to strengthen the resilience of the financial system, particularly during periods of financial stress. Here is an overview of the key measures taken by SAMA: 1. Enhanced Disclosure Requirements: a. Banks shall provide quarterly disclosures in addition to their annual reports, starting from the third quarter of 2023. The central bank will require banks to submit all relevant financial data within ten business days after the end of each quarter. 2. Capital Adequacy Ratio (CAR): a. SAMA has adopted Basel III's minimum CAR requirement, which is 9%, effective from January 1, 2023. The transition to this new standard will be phased in over a period of four years, with banks required to hold an additional 0.5% CET1 capital buffer by December 31, 2024. 3. Supervisory Review Process (SRP): a. SAMA will implement the SRP for large and systemically important banks to ensure they maintain adequate levels of capital and liquidity. This process involves a comprehensive assessment of banks' risk management practices, governance structures, and financial performance. 4. Liquidity Risk Management: a. Banks are required to maintain a minimum liquidity coverage ratio (LCR) of 100%, which is expected to be achieved by December 31, 2024. The LCR measures the adequacy of a bank's high-quality liquid assets to cover its net cash outflows over a 30-day horizon under stress conditions. 5. Stressed and Unstressed Transitional Period: a. Between January 1, 2023, and December 31, 2024, banks will be subject to both the old and new capital adequacy requirements during this transitional period. The weighted average of these two ratios should not fall below 9% throughout this period. b. During this period, banks are required to hold an additional 0.5% CET1 capital buffer by December 204. 6. Enhanced Reporting (EHOR): a. Starting from the third quarter of 203, all financial institutions shall submit their quarterly reports within ten business days after each quarter's end. The SAMA Bank Inspection Program will review and assess these reports based on international best practices for prudential regulation.