Banks Act, 1990 (Act No. 94 of 1990)RegulationsRegulations relating to BanksChapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof36. Consolidated supervision: consolidated returnMatters relating to consolidated supervision including directives and interpretations for completion of quarterly consolidated return (Form BA 600)Subregulation (14) Credit concentration risk and related matters |
| (14) | Credit concentration risk and related matters |
| (a) | In accordance with the provisions of section 73 of the Act read with the relevant requirements specified in regulations 24(6) to 24(8), and 39(1) to 39(5), and notwithstanding anything to the contrary contained in these Regulations, for the calculation of the relevant reporting bank or controlling company's consolidated exposure to credit concentration risk, the said bank or controlling company, as the case may be, shall on a fully consolidated basis include in the calculation of its exposure to credit concentration risk any relevant exposure granted to or utilised by a counterparty of the relevant bank or controlling company and its relevant associates; |
| (b) | As a minimum, a bank or controlling company shall have in place robust board approved policies, processes, procedures and systems— |
| (i) | amongst other things, to comply with the relevant requirements specified in section 73 of the Act read with the relevant provisions specified in this regulation 36 and in regulations 24(6) to 24(8), and 39(1) to 39(5), including any relevant requirement relating to matters such as— |
| (A) | concentration risk; |
| (B) | effective risk management; and |
| (C) | sound corporate governance. |
| (ii) | that enable the senior management of the relevant bank or controlling company— |
| (A) | to identify on a timely basis concentrations within the credit portfolio of the said bank or controlling company; |
| (B) | to continuously monitor and manage the bank or controlling company's exposure to concentration risk; |
| (C) | to conduct appropriate stress testing or scenario analysis, including stress testing in respect of— |
| (i) | adverse events such as a material decline in the creditworthiness of a counterparty or group of related persons; |
| (ii) | potential loss arising from a series of material changes in key risk factors; |
| (iii) | any relevant assumptions made in respect of diversification benefits or correlation; |
| (iii) | to continuously comply with any— |
| (A) | prescribed reporting requirements relating to concentration risk; or |
| (B) | prescribed or board-approved capital requirements or limits relating to concentration risk. |
| (c) | As a minimum, a bank or controlling company— |
| (i) | shall continuously comply with the relevant requirements envisaged in paragraph (b) above, which requirements may relate to the bank or controlling company's exposure to— |
| (A) | a single borrower; |
| (B) | a group of related borrowers; |
| (C) | any person that is related or connected to the relevant bank or controlling company; |
| (D) | a specific geographical area; |
| (E) | a particular industry sector; |
| (F) | a specific service provider. |
| (ii) | shall obtain the prior written approval of the Registrar in respect of any exposure to a person that in the opinion of the relevant bank or controlling company should be exempted from a specific requirement in respect of concentration risk contained in the Act or Regulations, provided that the relevant bank or controlling company— |
| (A) | shall in its application to the Registrar provide detailed reasons why the said exposure should be regarded as an exempt exposure, which reasons, for example, may include that the relevant person is subject to requirements specified in relation to consolidated supervision; |
| (B) | shall comply with such conditions as may be specified in writing by the Registrar in respect of any exempt exposure, which conditions may relate to matters such as— |
| (i) | the risk weighting of the relevant exposure; |
| (ii) | a minimum required amount of capital and reserve funds; |
| (iii) | public disclosure. |
| (d) | Unless expressly otherwise provided in this regulation 36 or the form BA 600, a large exposure in respect of a particular person relates to the aggregate credit exposure of the relevant reporting bank or controlling company, and any related person, to the said person in respect of— |
| (i) | all asset items or on-balance sheet exposure included in the form BA 100, including all loans and advances or investments; |
| (ii) | the said person's liabilities in respect of any outstanding acknowledgements of debt; |
| (iii) | all off-balance sheet items or contingent liabilities included in the form BA 110, including any committed undrawn facility; |
| (iv) | any counterparty exposure arising from any derivative instrument or unsettled transaction such as a swap, option or futures contract; |
| (v) | any relevant exposure arising from a repo-style transaction. |