Minimum Capital Requirements for Operational Risk

In case, a subsidiary of a bank have BI more than SAR 4.46 billion does not meet the qualitative standards for the use of the Loss Component, this subsidiary must calculate the standardized approach capital requirements by applying 100% of the BI Component. In such cases SAMA may require the bank to apply an ILM which is greater than 1. Annexure 1: Definition of Business Indicator Components Business Indicator definitions BI Component Profit and loss or balance sheet items Description Typical sub-items Interest, lease and dividend Interest income Interest income from all financial assets and other interest income (includes interest income from financial and operating leases and profits from leased assets) • Interest income from loans and advances, assets available for sale, assets held to maturity, trading assets, financial leases and operational leases • Interest income from hedge accounting derivatives • Other interest income • Profits from leased assets Interest expenses Interest expenses from all financial liabilities and other interest expenses (includes interest expense from financial and operating leases, losses, depreciation and impairment of operating leased assets) • Interest expenses from deposits, debt securities issued, financial leases, and operating leases • Interest expenses from hedge accounting derivatives • Other interest expenses • Losses from leased assets • Depreciation and impairment of operating leased assets Interest earning assets (balance sheet item) Total gross outstanding loans, advances, interest bearing securities (including government bonds), and lease assets measured at the end of each financial year Dividend income Dividend income from investments in stocks and funds not consolidated in the bank's financial statements, including dividend income from non-consolidated subsidiaries, associates and joint ventures. Services Fee and commission income Income received from providing advice and services. Includes income received by the bank as an outsourcer of financial services. Fee and commission income from: • Securities (issuance, origination, reception, transmission, execution of orders on behalf of customers) • Clearing and settlement; Asset management; Custody; Fiduciary transactions; Payment services; Structured finance; Servicing of securitizations; Loan commitments and guarantees given; and foreign transactions Fee and commission expenses Expenses paid for receiving advice and services. Includes outsourcing fees paid by the bank for the supply of financial services, but not outsourcing fees paid for the supply of non- financial services (eg logistical, IT, human resources) Fee and commission expenses from: • Clearing and settlement; Custody; Servicing of securitizations; Loan commitments and guarantees received; and Foreign transactions Other operating income Income from ordinary banking operations not included in other BI items but of similar nature (income from operating leases should be excluded) • Rental income from investment properties • Gains from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (IFRS 5.37) Other operating expenses Expenses and losses from ordinary banking operations not included in other BI items but of similar nature and from operational loss events (expenses from operating leases should be excluded) • Losses from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (IFRS 5.37) • Losses incurred as a consequence of operational loss events (eg fines, penalties, settlements, replacement cost of damaged assets), which have not been provisioned/reserved for in previous years • Expenses related to establishing provisions/reserves for operational loss events Financial Net profit (loss) on the trading book • Net profit/loss on trading assets and trading liabilities (derivatives, debt securities, equity securities, loans and advances, short positions, other ass