Guidelines on the Internal Liquidity Adequacy Assessment Plan (ILAAP)

ILAAP Reporting to SAMA i. The ILAAP shall be submitted to SAMA by 31 st of August each year using 30 th of June as a reference date. ii. Banks are required to provide, at minimum, details on all items mentioned in these guidelines or explain why any item is not relevant for their respective banks, taking into account the size, complexity and business model of the bank. C. Reporting Format and Content The ILAAP document should include, at minimum, the following sections: 1. Background This section is for introductory text describing the following: i. Business model, Bank/Group structure, balance sheet risks, relevant financial data, the reach and systemic presence of the bank. ii. Internal and external changes since the last ILAAP. iii. Changes in the scope of the document since the last review by the Board of Directors. iv. Justifications of the comprehensiveness and proportionality of the bank’s process. 2. Executive Summary This section should present an overview of the ILAAP methodology and results. This overview should include: i. The purpose and coverage of the ILAAP. ii. The main findings of the ILAAP analysis: - How much and what composition of liquidity the bank considers it should hold as compared with the liquidity resource requirement ‘pillar 1’ calculation. - The adequacy of the bank’s liquidity risk management processes. iii. A summary of the financial projections, including the strategic position of the bank, its balance sheet strength, and future profitability. iv. Brief descriptions of liquidity plans; how the bank intends to manage liquidity going forward and for what purposes. v. Commentary on the most material liquidity risks, why the level of risk is acceptable or, if it is not, what mitigating actions are planned. vi. Commentary on major issues where further analysis and decisions are required. vii. Who has carried out the assessment, how it has been challenged, and who approved it. 3. Objectives of an ILAAP This section should present a description of the bank's specific objectives relating to liquidity, such as shareholder returns, rating objectives for the bank as a whole or for certain securities being issued, avoidance of regulatory intervention, protection against uncertain events, depositor protection, working liquidity and liquidity held for strategic acquisitions etc., along with sufficient liquidity resources to cover the nature and level of the liquidity risk to which it is or might be exposed, the risk that the bank cannot meet its liabilities as they fall due, and the risk that its liquidity resources might in the future fall below the level, or differ from the quality and funding profile from those considered as appropriate by SAMA. 4. Governance and Risk Management This section should describe the governance and management arrangements around the ILAAP including the involvement of the Board of Director, in addition to the risk management framework. At least the following areas should be covered: i. Description of the process for the preparation and updating of the ILAAP. ii. Description of the process for reviewing the ILAAP. iii. Definition of the role and functions assigned to the Board of Directors and Senior Management for the purposes of the ILAAP. iv. Definition of the role and functions assigned to various corporate functions for the purposes of the ILAAP (for example, internal audit, compliance, finance, risk management, branches and other units). v. Indication of internal regulations relevant to the ILAAP. vi. The overall risk management framework and how it pertains to liquidity and funding risks. vii. Bank’s internal limits and control framework, including the limits and controls around liquid asset buffers, and the appropriateness of the limit structure to the risk appetite. 5. Summary of Bank's Strategies This section would be a major component of a bank's strategic and operational plans. It should include the following: i. The present financial position of the bank and expected changes to the current business profile, the environment in which it expects to operate, its projected business plans (by appropriate lines of business), projected financial position and cash flow positions, projected liquidity available and projected liquidity resource required based on future plans. ii. The starting balance sheet, cash flow statement and the date over which the assessment was carried out. iii. The projected balance sheet and cash flow statement (for at least one year horizon), which should clearly indicate the major lines of business which are going to be attested by the bank's strategic initiatives, environmental changes and assumption over the planning period and the impact on liquidity requirements by major lines of business. 6. Liquidity Adequacy and ILAAP This section should, at minimum, cover the following: