The Central Bank Board of Directors decided Continuing to exempt banks from applying the second clause of the Central Bank Board of Directors decision dated 6 January 2016 Issued under the periodic book on 11 January 2016 The limits of the concentration of credit portfolios of larger banks 50 A client and related parties until the end of December 2021, in session on March 28, 2021,
The central bank said in a statement today: “In light of the precautionary measures taken by the Central Bank to mitigate the repercussions of the emerging corona virus, and in light of the targeting of banks’ support to perform their role in supporting various economic sectors, it decided to continue exempting them from capital requirements to counter the credit concentration in the financing portfolio. Top 50 clients
What are the rules for credit concentration for the 50 largest customers?
In 2016, the Central Bank imposed two measures in the event that the total credit facilities granted to the 50 largest customers and parties associated with them exceed 50% of the credit portfolio. The first is to raise the weighted risk weight on the excess value when calculating the capital adequacy standard to 200% when the ratio ranges. Referred to more than 50% to 70% of the total portfolio, and 300% in the event that the percentage exceeds 70% of the portfolio.
On April 7, 2019, the Central Bank decided to implement new instructions related to credit concentration that were not taken into account in the first pillar of capital adequacy.
He called on banks to reduce the risks of concentration by setting internal limits for a single customer and related parties, or setting a ceiling for sector-wide investments, or bank products and related investments, whether inside or outside the budget.
He added that managing the portfolios and transferring risks through selling the asset or securitizing its loan portfolio, or by purchasing credit derivatives or obtaining guarantees and guarantees, in addition to keeping additional capital under the second pillar above the minimum supervisory capital.
The Central Bank required banks to use the Individual Concentration Index to measure the concentration risk of the portfolio of the largest thousand clients from companies and retail together, without deducting any provisions or taking any type of guarantees into account, according to the following equation: “Square the employments of the largest thousand customers without deducting allocations or guarantees. Divided by the product of the portfolio of the largest thousand customers in the total employment of the corporate and retail portfolios without deducting any provisions or guarantees.
Based on the result obtained from the application of the previous equation, the additional capital ratio required to meet the credit concentration risk is determined as a percentage of the capital requirements for corporate and retail credit risk in the first pillar.
If the result of the equation is less than 0.1%, this does not require the bank to keep any percentage of the capital for the assets weighted by risk weights, and if it is more than 0.1% and less than 0.2%, then the required ratio is 2%, and if it is more than 0.2% and less than 0.4%, the ratio is 4%, and if it is more than 0.4% and less than 1%, then the rate is 6%, and if it is greater than 1% and less than 100%, then the rate is 8%.
Al-Markazi said that if the capital requirement for the 50 largest clients within the first pillar of the capital adequacy criterion is greater than the capital requirement to meet the risks of individual concentration within the second pillar for the largest thousand customers – including 50 clients – then only the requirement is considered for the 50 largest customers.
He explained that if the capital requirement for the largest 50 clients is less, the bank should make the difference between them within the second pillar as an additional capital requirement for individual concentration risks, and at the sectoral concentration level, the central bank identified 20 economic sectors. Clients of companies are classified based on their type of activity, and banks measure sectoral concentration through a square account. Employing each sector separately and combining them together, then dividing the result by the square of the total of all companies ’investments distributed among the 20 specified sectors.
Based on the result, the rate of additional capital required to meet the sectoral concentration is determined as a percentage of the assets destined for the corporate sector weighted by risk weights. If the index result is between 0 and 12%, no capital of risk-weighted assets must be kept and between 12 and 15% must be kept about 2% and between 15 and 20%, about 4%, between 20 and 25%, about 6%, and between 25 and 100%, about 8%.
The central article extending the exemption of banks from credit concentration for the 50 largest customers until the end of 2021 was written in the Al-Borsa newspaper.