(7) | Basic indicator approach |
(a) | A bank that adopted the basic indicator approach shall calculate its required amount of capital and reserve funds in respect of operational risk through the application of the formula specified below, which formula is designed to calculate a capital requirement based on the average amount of the bank's positive annual gross income derived during the preceding three-year period, multiplied by 15 per cent, provided that— |
(i) | when the annual gross income for a particular year was negative or equal to zero, the bank shall exclude the relevant amounts for that particular year from both the numerator and the denominator when the bank calculates the relevant average amount of gross income; |
(ii) | amounts included in the calculation of average gross income shall be the relevant audited amounts in respect of the relevant year. When audited amounts are not available, the bank may with the prior written approval of and subject to such conditions as may be specified in writing by the Registrar use the latest amounts reported by the bank to its board of directors or senior management in respect of the relevant period; |
(iii) | a newly established bank that does not have the required gross income data to calculate the required gross income amounts may with the prior written approval of and subject to such conditions as may be specified in writing by the Registrar use gross income projections for all or part of the said three-year period. |
The formula is expressed as follows:
KBIA [∑(GI1....n x α)] /n
where:
KBIA | is the relevant required amount of capital and reserve funds under the basic indicator approach |
GI | is the relevant annual positive gross income amount derived during the preceding three-year period |
n | is the relevant number of the previous three years in respect of which gross income was positive |
α | is a fixed percentage, equal to 15 per cent |
(b) | For the purposes of subregulations (7) and (8), gross income means net interest income plus net non interest income, provided that the aforesaid amount of gross income shall not include— |
(i) | any provision for loss or impairment raised by the reporting bank; |
(ii) | any operating expenses of the reporting bank, including fees paid by the reporting bank to service providers in respect of outsourcing; |
(iii) | any realised profits or losses arising from the sale of securities held in the reporting bank's banking book, including any relevant amounts relating to securities classified as "held to maturity" or "available for sale"; |
(iv) | any extraordinary or irregular item; |
(v) | any income derived from insurance. |