13. Comparison of Modelled and Standardised RWA

Template CMS1 provides the disclosure of RWA calculated according to the full standardised approach as compared to actual RWA at risk level. Template CMS2 further elaborates on the comparison between RWA computed under the standardised and the internally modelled approaches by focusing on RWA for credit risk at asset class and sub-asset class levels. Template CMS1 – Comparison of modelled and standardised RWA at risk level Purpose: To compare full standardised risk-weighted assets (RWA) against modelled RWA for banks which have received SAMA’s approval to use internal models in accordance with the Basel framework. The disclosure also provides the full standardised RWA amount that is the base of the output floor as defined in Basel Framework “Risk-based capital requirements” (calculation of minimum risk-based capital requirements) as specified in the Output floor to be issued by SAMA. Scope of application: The template is mandatory for all banks using internal models. Content: RWA. Frequency: Quarterly. Format: Fixed. Accompanying narrative: Banks are expected to explain the main drivers of difference (eg asset class or sub-asset class of a particular risk category, key assumptions underlying parameter estimations, national implementation differences) between the internally modelled RWA disclosed that are used to calculate their capital ratios and RWA disclosed under the full standardised approach that would be used should the banks not be allowed to use internal models. Explanation should be specific and, where appropriate, might be supplemented with quantitative information. In particular, if the RWA for securitisation exposures in the banking book are a main driver of the difference, banks are expected to explain the extent to which they are using each of the three potential approaches (SEC-ERBA, SEC-SA and 1,250% risk weight) for calculating SA RWA for securitisation exposures. a b c d RWA RWA for modelled approaches banks which have received SAMA approval to use internal model RWA for portfolios where standardised approaches are used Total Actual RWA (a + b) (ie RWA which banks report as current requirements) RWA calculated using full standardised approach (ie RWA used in capital floor computation) 1 Credit risk (excluding counterparty credit risk) 2 Counterparty credit risk 3 Credit valuation adjustment 4 Securitisation exposures in the banking book 5 Market risk 6 Operational risk 7 Residual RWA 8 Tota Definitions and instructions Rows: Credit risk (excluding counterparty credit risk, credit valuation adjustments and securitisation exposures in the banking book) (row 1): Definition of standardised approach: The standardised approach for credit risk. When calculating the degree of credit risk mitigation, banks must use the simple approach or the comprehensive approach with standard supervisory haircuts. This also includes failed trades and non-delivery-versus-payment transactions as set out in SCRE25 . The prohibition on the use of the IRB approach for equity exposures will be subject to a five-year linear phase-in arrangement as specified in SCRE17.2 . During the phase-in period, the risk weight for equity exposures used to calculate the RWA reported in column (a) will be the greater of: (i) the risk weight as calculated under the IRB approach, and (ii) the risk weight set for the linear phase-in arrangement under the standardised approach for credit risk RWA for modelled approaches that banks have SAMA approval to use (cell 1/a): For exposures where the RWA is not computed based on the standardised approach described above (ie subject to the credit risk IRB approaches (Foundation Internal Ratings-Based (F-IRB), Advanced Internal Ratings-Based (AIRB) and supervisory slotting approaches of the credit risk framework). The row excludes all positions subject to SCRE18 to SCRE23 , including securitisation exposures in the banking book (which are reported in row 4) and capital requirements relating to a counterparty credit ris