The Saudi Central Bank (SAMA) announces the launch of Basel III Final Reforms official implementation by Saudi Banks as of January 1, 2023, which comes in line with the internationally agreed timeline set by the Basel Committee on Banking Supervision (BCBS), the global standard-setter for the prudential regulation of banks.
The reforms were issued by the BCBS in December 2017, which complements Basel III standards issued by the BCBS in 2010, with the aim of restoring creditability in the calculation of risk-weighted assets (RWA) by improving the sensitivity of the standardized approach (SA) used in calculating them, and reducing the reliance on the internal ratings-based approach (IRB). It also aims to complement the risk-weighted capital ratio with a revised leverage framework and minimum outputs for calculating risk-weighted assets (Output Floors).
Subsequently, SAMA has updated the prudential framework for Saudi banks’ capital risks to align with these reforms as part of its commitment to fulfil the expectations from the Kingdom of Saudi Arabia as a member of the G20, and as a continuation of its endeavor to making the Kingdom one of the leading countries in applying international standards. This comes based on the powers vested in the Saudi Central Bank under its law issued by Royal Decree No. (M/36) dated 11/04/1442 and the Banking Control Law issued by Royal Decree No. M/5 dated 22/02/1386.
SAMA has also carried out a pilot application of Basel III, which was launched during the second half of 2022, with the participation of all Saudi banks. The pilot application demonstrated initially the readiness of the banking sector for the official implementation while maintaining stable capital levels, which contributes to achieving SAMA objective to maintain financial stability.