Financial Supervision and Regulation
Algeria
Developing a Risk Rating Framework for Banks
METAC assisted Banque d’Algerie (BA) during June 10–27 to develop a risk rating framework for banks, representing the last phase of a multi-step project that started in 2020. The project aimed at replacing the existing CAMELS rating system with a new rating system that covers a wider array of risks and is based on a set of quantitative and qualitative indicators. Unlike the CAMELS rating, the new rating will be produced by the off-site function to ensure updated results. The mission (i) finalized the methodological guide that describes the architecture, processes, and procedures of rating; (ii) reviewed the test results and proposed final finetuning to some indicators, weights, and benchmarks; and (iii) developed a guide relating the rating of a bank and its size to the intensity and frequency of supervisory activities. Finally, regulations to further enhance the new rating system and reinforce risk-based supervision were proposed as next steps.
Egypt
Onsite Inspection of Risk Management, Internal Control, ICAAP and IFRS 9
METAC provided capacity building for the on-site supervisors of the Central Bank of Egypt (CBE) during 9–13 June in onsite inspection of risk management, internal control, Internal Capital Adequacy Assessment Process (ICAAP) and IFRS 9. It presented onsite inspection methodologies to assess risk management, corporate governance, and internal control. The mission explained ICAAP philosophy, principles, and assessment methodology, presented onsite inspection methodology for IFRS 9 implementation, and illustrated the interaction between regulatory and accounting provisioning and impact on capital. The workshop was attended by 9 senior onsite supervisors who were trained in identifying gaps and room to modernize their current procedures of onsite inspection.
Iraq
Developing and implementing the Basel Framework Pillar 2 Supervisory Review Process
To strengthen the Central Bank of Iraq (CBI) supervisors’ capacity in Basel Framework Pillar 2 and ensuring banks have sufficient capital and liquidity to support all the risks in their business, a METAC mission met six CBI participants in Amman, Jordan, during 24-28 June. The mission focused on enhancing the CBI supervisors' understanding of the supervisory review process (SRP) and internal capital adequacy assessment process (ICAAP). The mission team presented and discussed the purpose, key components, and regulatory aspects along with implementation strategies.
Jordan
Developing regulation on Interest Rate Risk in the Banking Book (IRRBB)
The project started on 13-17 October with a workshop aiming to build supervisors’ knowledge on the topic to help the Central Bank of Jordan (CBJ) to develop the regulation recommended by Jordan’s Financial System Stability Assessment FSAP report, issued in April 2023. The workshop covered the key concepts of the Interest Rate Risk in the Banking Book (IRRBB) and presented the measurement approaches. It also presented the Basel Committee’s principles for banks and the supervisor on interest rate risk and discussed its integration in the Supervisory Review Process and its impact on capital surcharge. The mission agreed with the CBJ to produce a first draft of IRRBB regulation that METAC will review in a prospective mission in early FY26. This will help strengthen banks’ management and supervisory assessment of interest rate risk which became a supervisory priority amid a higher interest rate environment.
Developing SRP Risk Rating Methodology for Banks
METAC continued with the CBJ the multi-step medium-term project on developing SRP risk rating methodology for banks, which will be conducted virtually until the end of fiscal year 2025. The virtual activity will be followed by an in-person mission in early FY26 to finalize the overall SRP architecture, the various building blocks and launch the testing process. During October 20-30, METAC reviewed the first two chapters of the rating methodology (i) SRP overall architecture and (ii) credit risk. Other chapters on liquidity, operational risk, internal control and governance, profitability and business model, and market risk will follow in the coming months. The completion of this multi-step project will support the CBJ supervisory approach to move towards Risk-based Supervision, which will help address some of the FSAP report’s recommendations on banking supervision.
Morocco
Developing Supervisory Guidance for the Review of Banks’ Liquidity Reports
During 21-25 October, METAC assisted Bank Al Maghrib (BAM) in developing a first draft of internal guidelines to aid the supervisors in their review process of banks’ Internal Liquidity Adequacy Assessment Process (ILAAP) reports. In its pursuit to implement Basel III requirements, the BAM introduced in 2014 the Liquidity Coverage Ratio requirement with the objective to promote banks’ resilience to short-term liquidity risk. BAM recently developed a draft regulation on Net Stable Funding Ratio to mitigate funding risk over a longer horizon and prepared a draft regulation on ILAAP which set out supervisory expectations for banks’ internal assessment of liquidity risk. The internal guidelines for ILAAP are planned to be finalized with the help of METAC in February 2024. These guidelines will serve as a reference to guide supervisors in their dialogues with banks on the effectiveness of liquidity management, its governance, and the adequacy of liquidity buffers.
West Bank and Gaza
Enhancing Risk-Based Supervision with an updated Risk-Based Supervision Manual
During August 4-8, METAC supported the Palestine Monetary Authority in enhancing risk-based supervision by updating the risk-based supervision manual draft. This included defining the manual's structure, aligning it with the European Union's Supervisory Review and Evaluation Process, and refining the risk assessment system. The process involved revising risk categories from quantitative and qualitative angles, conducting reviews and training on Supervisory Review and Evaluation Process components.
Yemen
Enhancing Supervision and Regulation on Capital Adequacy Framework
As part of a multi-step project aimed at a full development and implementation of the Basel III Capital Adequacy Framework, a mission during 9-13 June assisted the Central Bank of Yemen (CBY) supervisors in capacity developing of Basel III Capital Adequacy Framework Pillar 1. The mission presented and discussed the components of Pillar 1, the application of proportionality to regulatory requirements and areas where Yemeni supervisors may exercise national discretion. The review and discussions improved Yemeni supervisors’ understanding of Pillar 1 components and will help them making informed decisions on the development of their own regulation.
Implementing Pillar 1 of the Basel III Capital Adequacy Framework
During September 16-20, METAC supported the Central Bank of Yemen (CBY) in drafting the Pillar 1 regulation and develop corresponding reporting templates, aligning them with the draft regulation. The mission also discussed the regulatory issuance process and stages, and steps needed for conducting a quantitative impact study.
Developing risk management regulations
During October 19-23, a METAC mission assisted the CBY in developing risk management regulations specific to its banking sector. The mission team presented key principles from the Basel Committee, guiding the CBY representatives in identifying significant risks in the Yemeni banking industry that require regulatory focus and specific requirements. The mission team also outlined the necessary approaches and processes to adapt these requirements to the banking industry. Discussions concluded with drafting a regulation framework for the Yemeni banking system, which the CBY representatives will further refine and develop.
