Minimum Capital Requirements for Operational Risk

Building of the Standardized Approach Loss Data Set In order to build an acceptable loss data set from the available internal data, a bank must develop policies and procedures to address several features, including gross loss definition, reference date and grouped losses. 9.2 Gross Loss, Net Loss, and Recovery Definitions This Article has been amended according to SAMA's circular No. (472014119), Dated 01/03/1447H, corresponding to 24/08/2025G . 9.2.1 Banks must be able to identify the gross loss amounts, non-insurance recoveries, and insurance recoveries for all operational loss events. Banks should use losses net of recoveries (including insurance recoveries) in the loss dataset. However, recoveries can be used to reduce losses only after the bank receives payment. Receivables do not count as recoveries. Verification of payments received to net losses must be provided to SAMA upon request. 9.2.2 The following items must be included in the gross loss computation of the loss data set: a) Direct charges, including impairments and settlements, to the bank’s P&L accounts and write-downs due to the operational risk event; b) Costs incurred as a consequence of the event including external expenses with a direct link to the operational risk event (e.g. legal expenses directly related to the event and fees paid to advisors, attorneys or suppliers) and costs of repair or replacement, incurred to restore the position that was prevailing before the operational risk event; c) Provisions or reserves accounted for in the P&L against the potential operational loss impact; d) Losses stemming from operational risk events with a definitive financial impact, which are temporarily booked in transitory and/or suspense accounts and are not yet reflected in the P&L (“pending losses”). 4 Material pending losses should be included in the loss data set within a time period commensurate with the size and age of the pending item; and e)* Negative economic impacts booked in a financial accounting period, due to operational risk events impacting the cash flows or financial statements of previous financial accounting periods (timing losses). Material “timing losses”. 5 should be included in the loss data set when they are due to operational risk events that span more than one financial accounting period. 9.2.3 The following items should be excluded from the gross loss computation of the loss data set: a) Costs of general maintenance contracts on property, plant or equipment; b) Internal or external expenditures to enhance the business after the operational risk losses: upgrades, improvements, risk assessment initiatives and enhancements; and c) Insurance premiums. 9.2.4* Banks must use the date of accounting for building the loss data set. This includes using the date of accounting for including losses related to legal events in the loss dataset.