4. » (1966) – SAMA Banking Control law applied to banking sector which had modern regulatory concepts such as
solvency, liquidity, leverage, large exposures, and related party lending. This law is binding in terms of
minimum requirements resulting in penalties for violations.
[achievement for Saudi Arabia that we had these rules much before Basel I was published]
» (1981 – 82) – SAMA Governor becomes an observer to G10 forum
» (1988) – Basel I rules published
» SAMA given a 0% risk weight like the G10 countries
» (1992) – Implementation of Basel I rules in Saudi Arabia
» (1992-93) – International accounting standards (IFRS – International Financial Reporting Standards) followed
» (1992) – Process of adopting and implementing Basel Standards commenced
» (1996) – Market Risk amendment – 2004 - SAMA’s implementation
SAMA RELATIONSHIP WITH BIS AND BCBS
4
5. BASEL 1 - 1988
Basel I - since 1988 after failure of a German Bank
Simple risk weightings by asset classes as risk sensitivity of
assets was recognised
Differentiated percentages applied to five asset categories
(0%, 10%, 20%, 50% & 100%) to compute Risk Weighted
Assets (RWA)
RWA included only credit risk
Minimum capital requirements introduced – 8%
Market risk added in 1996
Inability to reflect true credit risk sensitivity
Not capturing operational risk
Emphasis on book value and not market value
Inadequate assessment of new and complex financial products
i.e. derivatives
Min.
8%
5
6. BASEL 2 – 2005-06
Basel II strengthens international capital standards by:
Separating operational risk from credit risk and market risk and quantifying all three Pillars (1,2,3) as on next page
Introduction and reliance on Internal Models for credit, market and operational risk
Enhanced risk sensitivity
Strengthening supervisory process – Pillar 2
Enhancing disclosure of bank’s risk information – Pillar 3
Min.
8%
6
8. »(2005-6) – Basel II rules issued
»(2008) – Basel II implemented in Saudi Arabia (Implementation in Basel countries 2007)
BASEL RELATIONSHIP HISTORY IN SAUDI ARABIA
8
9. FAILURE OF BASEL II – FINANCIAL CRISIS
Excessive reliance on Internal Models
Build up of excessive on and off balance sheet leverage
Gradual erosion of level and quality of capital base
Insufficient liquidity buffers
Inability to absorb systemic trading and credit losses
Deleveraging processes causing damage to the banking sector financial system
and economies
Formation of GSIBs which were too big to fail
Interconnectedness of systemic institutions through complex transactions
9
10. BASEL 2.5 - 2011
In addition, introduced:
a. More disclosures
around market risk and
securitisation
b. Enhanced Disclosures
Task Force (EDTF)
requirements
10
during the financial crisis
• Basel Senior Supervisors Committee initiated this work
11. »(1998-04) – Member of core principles and international liaison group
»(2004) – Basel market risk rules published and applied in Saudi Arabia
»(2005-6) – Basel II rules issued
»(2008) – Basel II implemented in Saudi Arabia
»(2009) – SAMA invited to join BCBS. Basel II.5 rules published
»(2012) – Basel III published
»(2013) – Basel II.5 and III implemented and no major issues as Saudi Banks have highest capital,
liquidity and leverage ratios
»(2013) – Many other Basel principles and standards implemented
»(2015 onwards) – Looking ahead into Basel IV and new approaches
SAMA PARTICIPATION IN BASEL WORK AND IMPLEMENTATION OF BASEL III IN SAUDI ARABIA
11
12. ProcessfollowedforBaselrules
Basel rules
too detailed
to provide
relevant
guidance to
local banks
a. SAMA issues detailed
papers, circulars and
specific guidance
(returns)
b. Surveys for bilateral
dialogue, scoping and
planning
Consultation process
through various
working groups,
QISs i.e. Capital,
Liquidity, Leverage,
Risk etc. (over 100
meetings held on Basel 2
project)
Parallel run
and finally
adopt
12
