Pillar III Disclosure Report as at 31 st December 2016

Transcription

1 Pillar III Disclosure Report as at 31 st December 2016 Issued February 2017 Pillar III Disclosure Report Page 1

2 Table of contents 1. INTRODUCTION & SCOPE OF APPLICATION Group Structure Material & Legal Impediments related to Subsidiaries CAPITAL STRUCTURE Terms & Conditions Capital Base CAPITAL ADEQUACY Minimum Capital Requirement Internal Capital Adequacy Assessment Process (ICAAP) Capital Charge Calculation Capital Requirement & Total Capital Ratio RISK MANAGEMENT Risk Management Function Credit Risk Market Risk Operational Risk Credit Risk Disclosure Credit Risk Exposure Mitigation Counterparty Credit Risk (CCR) and Off-Balance Sheet Disclosure Market Risk Disclosure Operational Risk Disclosure Liquidity Risk Disclosure APPENDICES APPENDIX I: DISCLOSURE ON CAPITAL BASE APPENDIX II: DISCLOSURE ON CAPITAL ADEQUACY APPENDIX III: DISCLOSURE ON CREDIT RISK S WEIGHT APPENDIX IV: DISCLOSURE ON CREDIT RISK S RATED EXPOSURE APPENDIX V: DISCLOSURE ON CREDIT RISK MITIGATION Pillar III Disclosure Report Page 2

3 1. INTRODUCTION & SCOPE OF APPLICATION Samba Capital & Investment Management Company (Samba Capital or Company) is a limited liability company incorporated in the Kingdom of Saudi Arabia under commercial registration number dated 6 Shabaan 1428H (August 19, 2007) issued in Riyadh having Capital Market Authority (CMA) license no The objective of the Company is to provide a full range of Investment Banking, Corporate Finance, Brokerage, Asset Management and Custody services covered by CMA licenses of (i) Dealing as Principal, Agent & Underwriter, (ii) Arranging (iii) Managing Investment Funds & Discretionary Portfolios (iv) Advising and (v) Custody. In addition, Samba Capital is authorized to provide Margin Lending Facilities under Dealing License. The Pillar III disclosure report has been prepared in accordance with the Prudential Rules issued by the CMA in December 2012 and Pillar III disclosure guidelines. The purpose of this report is to inform market participants about Samba Capital s capital structure, risk exposures, Risk Management process and capital adequacy. 1.1 Group Structure Samba Capital is a wholly owned subsidiary of Samba Financial Group (SFG or Parent Bank), a joint stock company incorporated in the Kingdom of Saudi Arabia and listed on the Saudi Arabian stock exchange, providing a full range of banking and related services with the following subsidiaries. Samba Bank Ltd, Pakistan (SBL): A 84.51% owned subsidiary incorporated as a banking company in Pakistan and engaged in commercial banking and related services, and listed on the Pakistan Stock Exchange. Co-Invest Offshore Capital Limited (COCL): A wholly owned company incorporated under the laws of Cayman Islands for the purpose of managing certain overseas investments through an entity; Investment Capital (Cayman) Limited (ICCL) which is fully owned by COCL. ICCL has invested in approximately 41.2% of the share capital of Access Co-Invest Limited, also a Cayman Island limited liability company, which manages these overseas investments. Samba Real Estate Company: A wholly owned subsidiary incorporated in Saudi Arabia under commercial registration no issued in Riyadh dated 9 Jumada II, 1428H (June 24, 2007). The company has been formed as a limited liability company with the approval of SAMA. Samba Global Markets Limited: A wholly owned company incorporated as limited liability company under the laws of Cayman Islands on February 1, 2016, with the objective of managing certain treasury related transactions. The company started its commercial operations during the fourth quarter of Material & Legal Impediments related to Subsidiaries Samba Capital does not have any subsidiaries; hence this section does not apply. Pillar III Disclosure Report Page 3

4 2. CAPITAL STRUCTURE 2.1 Terms & Conditions There are no terms and conditions applicable to the current capital items except that in accordance with the Regulations for Companies in the Kingdom of Saudi Arabia and the Articles of Association of the Company, a minimum of 10% of the net income for the year is required to be transferred to a statutory reserve every year. No such transfers were made during the year (2015: Nil) as the reserve has already reached the maximum limit in the prior years. 2.2 Capital Base Breakdown of company s capital base as of 31st Dec 2016 and 2015 is provided below. Capital base disclosure as required by the Pillar III guidelines of CMA is provided in Appendix I. Capital Base SAR '000 (Dec ) SAR '000 (Dec ) Paid-up capital 500, ,000 Retained Earnings 376, ,559 Share premium - - Reserves (other than revaluation reserves) 250, ,000 Tier-1 capital contribution - - Deductions from Tier-1 capital - - TOTAL CAPITAL BASE 1,126,678 1,197,559 Pillar III Disclosure Report Page 4

5 3. CAPITAL ADEQUACY 3.1 Minimum Capital Requirement SC s capital base sufficiently covers all material risks meeting the minimum capital requirement with the capital ratio of 6.51x against the CMA requirement of 1x. The company intends to maintain a healthy capital ratio as a buffer to cater future business growth. 3.2 Internal Capital Adequacy Assessment Process (ICAAP) Capital adequacy assessment is conducted annually with regular reviewing and monitoring of the Capital Adequacy Ratio. The ICAAP process starts with growth projections in all business areas with resulting increase in credit, market, operational and Pillar II risks leading to total capital requirement that is compared against the available capital to assess the need for any additional capital. Stress testing is a critical element of the Pillar II exercise incorporating the impact of stressed market conditions on the company s revenues and capital base ultimately affecting projected capital ratios. ICAAP is as an important part of the Risk Governance as it provides an overview of the Risk Management framework, identification of material risks, capital planning, dividend policy and company s risk appetite. While the Risk Management Division leads the ICAAP Process, business and support functions provide inputs for the exercise. The assessment is reviewed by Senior Management and approved by the Board. 3.3 Capital Charge Calculation Credit Risk: Samba Capital calculates capital requirement for credit risk according to standardized approach as adopted by CMA which requires exposure to be assigned to portfolio segments based on the nature of underlying exposure. Please refer to Appendix II for capital requirement calculation. Market Risk: The Company calculates capital charge as per CMA rules using standardized approach. Operational Risk: Operational risk capital charge is calculated under basic indicator approach, for more details please refer to section 4.6. Pillar III Disclosure Report Page 5

6 3.4 Capital Requirement & Total Capital Ratio For quantitative disclosure as required by Pillar III guidelines of CMA please refer to Appendix II. Capital requirement and capital ratio for the year ended 31st Dec 2016 and 2015 are provided below. Capital Base SAR '000 (Dec ) SAR '000 (Dec ) Credit Risk 71,120 91,579 Operational Risk 101, ,981 Market Risk Total Capital Requirement 172, ,560 Total Capital Base 1,126,678 1,197,559 Capital Ratio Pillar III Disclosure Report Page 6

7 4. RISK MANAGEMENT 4.1 Risk Management Function Risk Management is an independent function headed by CRO reporting to the CEO, with the responsibility for developing adequate risk policies & limits and promoting the risk management culture across the company. Samba Capital follows an enterprise-wide Risk Management approach whereby risk controls are embedded within various support functions independent of business such as Operations, Middle Office, Risk, Finance, Compliance, Legal etc. Some of the guiding principles followed in day to day Risk Management include the product program framework, multiple approvers and robust senior management oversight through the following committees chaired by the CEO and governed by their respective charters. Operating Committee (OpComm) Fiduciary & Investment Review Committee (FIRC) Risk & Compliance Committee (RCC) In addition there are other committees entrusted with more specific roles like Investment Committee, SREF (Samba Real Estate Fund) Investment Committee, Valuation Committee (VC) and New Business Committee (NBC). The Board of Directors is the highest level approval body with two Board Committees (Audit Committee and Nomination & Remuneration Committee) providing oversight through regular meetings. In addition Samba Capital has a Corporate Governance Policy which provides guidelines to the Board and Senior Management in fulfilling their responsibilities. Pillar III Disclosure Report Page 7

8 Please find below the Risk & Compliance Organizational Structure as per CMA Pillar III Disclosure guidelines Credit Risk Credit risks are mitigated through strict adherence to approved risk policies for all credit activities including fiduciary placements, investments and margin trading (Murabaha trading) with adequate systems and processes to capture, measure and monitor exposures on a regular basis. Some of the major risk management processes and controls are summarized below: Stringent risk acceptance criteria for Counterparties (CP) selection and limit allocation for fiduciary placements with independent monitoring of limits and rating changes by Risk Management. Customer credit check, suitability analysis and customer categorization based on formally defined risk acceptance criteria Collateral requirement for margin lending with regular review of the portfolio by Risk Management and monitoring of collateral coverage and margin call actions by Middle Office. Stock selection policy setting forth the processes and controls for reviewing and maintaining the approved list of securities for Murabaha trading purposes. Periodic review of eligible stocks for Murabaha trading using risk based rating system with maximum exposure limits on high risk stocks. Pillar III Disclosure Report Page 8

9 Review and approval of individual fiduciary investment transactions by evaluating issuer risk and ensuring conformity with the fund Terms &Conditions and Product Program. Regular senior management reviews of placements and investments exposures vis a vis current market developments in quarterly FIRC and AMD investment committee meetings Market Risk Market Risk primarily arises from underwriting and principal investments (PI) businesses. However, there were no outstanding exposures for those activities as of 31 st December Market Risk is mitigated through approved strategies, policies and processes laid down in respective product programs. The Principal Investment product program clearly defines policies for investment selection, valuation, risk monitoring and exit triggers. Regular reviewing, approval and oversight processes help mitigate the market risk. With respect to underwriting transactions, all valuations are approved by the Valuation Committee (VC) with close monitoring of underwriting commitments ensuring timely mitigation of underlying risks Operational Risk Operational Risk is managed across businesses and support functions backed by sound operational process with built in controls to prevent breach of policies & regulations and operational errors. Risk Management strategies, processes and reporting are summarized below: Robust Operational Risk Management framework with regularly updated Operating Manuals, Product Programs and Business Continuity Plans ensuring continued effective delivery of all Products & Services. Robust quarterly Risk & Control Self-Assessment (RCSA), ensuring effectiveness of controls and early detection of non-compliance. Timely capturing of P&L events in operational risk system, with loss impact and corrective actions allowing monitoring of Key Risk Indicators and avoiding reoccurrence of loss events. Thorough due diligence of counterparties for trade execution and custodial services assessing their capacity to deliver the required services in terms of technology, systems and financial soundness. Strict adherence to ethical standards through employee trading policy, whistle blowing policy and Fraud Control Programs. Independent monitoring of internal audit Corrective Action Plans (CAP) by Risk Management ensuring timely closure of audit issues and regular oversight of operational risk issues by RCC. Pillar III Disclosure Report Page 9

10 Structure and organization of Risk: Please see the section 4.1. for organization structure of Risk Management and Compliance functions. Policies/guidelines for hedging: The company is not involved in any hedging activities related to credit, market or operational risk. Pillar III Disclosure Report Page 10

11 4.2 Credit Risk Disclosure Qualitative and quantitative disclosures regarding credit risk are provided below: Definition of past due claims and impaired liabilities Approaches adopted to determine impairments and specific provision Names of credit rating agencies Type of exposure classes for which CRA is used Mapping between the credit rating from each CRA Quantitative disclosure: Total gross credit risk exposure Amount of impaired exposures and past due exposures provided separately Amount of impairments and specific provisions Changes for impairments and specific provisions during the period Geographic distribution of credit risk exposures Residual contractual maturity breakdown of credit risk exposure Reconciliation report for changes in impairment Exposure amounts before and after credit risk protection Past due item shall refer to an exposure where, interest or principal are more than 90 days past due, calculated from the original agreed payment date. Not Applicable. Moody s, S&P and Fitch ratings are used for the purpose of capital requirement; there were no changes during the period. Placement with the parent bank. Not applicable as the credit rating agency is one of those mentioned in the Annex 11 & 12 of the Prudential regulations. Detail of gross credit exposure, plus average gross exposure as at 31st December 2016 by major types of credit exposure are provided in Appendix III. Not Applicable as of 31st December Not Applicable as of 31st December Not Applicable as of 31st December All credit risk exposures are within the Kingdom of Saudi Arabia. Most of the credit risk exposure are of short-term nature with maturity of less than a year. Not Applicable as of 31st December For exposure amount before and after credit protection please refer to Appendix V. Pillar III Disclosure Report Page 11

12 4.3 Credit Risk Exposure Mitigation Qualitative and quantitative disclosures regarding credit risk mitigation are provided below: Discussion of policies for securing collateral Off-balance sheet netting Policies and process for collateral valuation Description of the most important types of collateral Important types of guarantor and credit derivative counterparties Market or credit risk concentration within the credit risk mitigation Quantitative disclosure While offering Murabaha trading (Margin trading), the company secures collateral in the form of cash or internally rated Shariah compliant stocks listed on Tadawul. Customers are categorized into one of the 3 segments and amount of collateral depends upon among other things the customer s credit history, his suitability score and trading history. Not applicable. Shares held as collateral for Murabaha trading are valued daily based on Tadawul closing prices and customers have to maintain required level of coverage ratio at all times. If the coverage ratio falls below that level, customers are notified through margin calls to replenish their account. The company has the right to partially or fully liquidate the portfolio if the customer fails to fulfill his obligation under the Murabaha agreement. The list of stocks qualified for Murabaha trading collateral is periodically reviewed using a set of risk criteria and customers are notified of the change accordingly. Approved list of Shariah compliant stocks listed on Tadawul. Not applicable. To control market risk concentration within the Murabaha trading collateral, Samba Capital has put in place limits on certain stock categories and per customer limit to control credit risk concentration to a single customer. For quantitative disclosure on credit risk exposure mitigation please refer to Appendix V. Pillar III Disclosure Report Page 12

13 4.4 Counterparty Credit Risk (CCR) and Off-Balance Sheet Disclosure Not Applicable as of 31st December Market Risk Disclosure Qualitative and quantitative disclosures regarding Market Risk are provided below: General Disclosure Quantitative disclosure: Trading book business Samba Capital s market risk exposure could potentially arise from underwriting commitments and Principal investments for which appropriate risk policies and processes are in place as discussed in general disclosure for market risk in section Market risk arising from fiduciary business (asset management) are borne by customers as disclosed in the fund T&C and managed by the portfolio manager in accordance with fund product program within the regulatory parameters and objectives. Not Applicable as of 31st December Operational Risk Disclosure Qualitative and quantitative disclosures regarding Operational Risk are provided below: General Disclosure Approach adopted for operational risk capital assessment Quantitative disclosure: Summary of Operational risk capital requirement For discussion on general disclosure related to operational risk information please refer to section The Operational Risk capital charge is calculated as higher of the amounts under the following two approaches. 1) Basic Indicator Approach: Under the Basic Indicator Approach, 15% capital charge is calculated on average operating Income of the last three audited financials. 2) Expenditure Based Approach: Under Expenditure Based Approach 25% capital charge is calculated on all overhead expenses except extraordinary expenses (such as write-offs) as per the most recent audited annual financial statements. Particulars Basic Indicator Approach (15% capital charge on average operaing income of the last 3 years audited financials) Expenditure Based Approach (25% capital charge of last year audited overhead expenses) Operational Risk charge (max. of the above 2 approaches) 2016 (SAR '000) 2015 (SAR '000) 101, ,981 49,190 49, , ,981 Pillar III Disclosure Report Page 13

14 4.7 Liquidity Risk Disclosure Qualitative and Quantitative disclosures regarding Liquidity Risk are provided below: Strategies and guidelines for liquidity Risk Management: The company has a highly liquid balance sheet with the majority of the assets being bank placements, sufficient to cover its liquidity obligations. It is the company s policy to maintain adequate liquidity to meet operational and business requirements at all times. Additional funding needs for any new product or investment is planned ahead by clearly stipulating the funding amount, source, timing and expected funding costs in product proposals /programs. Risk Management is responsible for developing adequate policies and limits for liquidity Risk Management, with Liquidity ratios and Maturity Gap Analysis being used for monitoring the liquidity risk. The objective of maturity gap analysis is to avoid occurrence of large funding gaps in the maturity structure of Samba Capital s assets and liabilities. Stress test: Stress testing is a part of the liquidity risk management policy which requires development of plausible scenarios with the objective to assess that the company has sufficient funds under stressed conditions. Quantitative disclosures: Liquidity Position: The company s liquidity reserve primarily consists of placement with the parent bank which sufficiently covers the outstanding obligations as reflected in the below liquidity ratio as at 31st December 2016: SN Ratio Dec-16 Dec-15 Description 1 Liquid assets / Total Assets 92.71% 86.43% This reflects overall liquidity of the balance sheet. 2 Maturity gap analysis Positive Positive This reflects that the company has positive gaps (net maturing assets) in all maturity buckets. Pillar III Disclosure Report Page 14

15 APPENDICES Pillar III Disclosure Report Page 15

16 APPENDIX I: DISCLOSURE ON CAPITAL BASE Disclosure on capital base as of 31st December 2016 and 2015 are provided below: Capital Base SAR '000 (Dec ) SAR '000 (Dec ) Paid-up capital 500, ,000 Retained Earnings 376, ,559 Share premium - - Reserves (other than revaluation reserves) 250, ,000 Tier-1 capital contribution - - Deductions from Tier-1 capital - - Total Tier-1 capital 1,126,678 1,197,559 Subordinated loans - - Cumulative preference shares - - Revaluation reserves - - Other deductions from Tier-2 (-) - - Deduction to meet Tier-2 capital limit (-) - - Total Tier-2 capital 0 0 TOTAL CAPITAL BASE 1,126,678 1,197,559 Pillar III Disclosure Report Page 16

17 APPENDIX II: DISCLOSURE ON CAPITAL ADEQUACY Disclosure on capital adequacy as of 31st December 2016 is provided below: Exposure Class Exposures before CRM SAR '000 Net Exposures after CRM SAR '000 Risk Weighted Assets SR '000 Amounts in SAR' 000 Capital Requirement SAR '000 Credit Risk - On-balance Sheet Exposures - Governments and Central Banks - Authorised Persons and Banks 1,170,144 1,170, ,029 32,764 Corporates - Retail - Investments - Securitisation - Margin Financing* 12,354 12,354 18,531 2,594 Other Assets 79,717 79, ,442 35,762 Total On-Balance sheet Exposures 1,262,215 1,262, ,002 71,120 Off-balance Sheet Exposures - OTC/Credit Derivatives - Repurchase agreements - Securities borrowing/lending - Commitments - Other off-balance sheet exposures - Total Off-Balance sheet Exposures - - Total On and Off-Balance sheet Exposures 1,262,215 1,262, ,002 71,120 Prohibited Exposure Risk Requirement - - Total Credit Risk Exposures 1,262,215 1,262, ,002 71,120 Market Risk Long Position Short Position Interest rate risks Equity price risks Risks related to investment funds Securitisation/resecuritisation positions Excess exposure risks Settlement risks and counterparty risks Foreign exchange rate risks Commodities risks. Total Market Risk Exposures Operational Risk ** 101,861 Minimum Capital Requirements 172,982 Surplus/(Deficit) in capital 953,696 Total Capital ratio (time) 6.51 *Collateral against margin financing has not been considered for calculation of risk weighted assets as per the CMA rules. **Based on the audited average operating income for the last 3 years (2016, 2015, 2014) Pillar III Disclosure Report Page 17

18 Disclosure on capital adequacy as of 31st December 2015 is provided below: *Collateral against margin financing has not been considered for calculation of risk weighted assets as per the CMA rules. ** Based on the audited average operating income for the last 3 years (2015, 2014, 2013) Pillar III Disclosure Report Page 18

19 APPENDIX III: DISCLOSURE ON CREDIT RISK S WEIGHT Disclosure on credit risk s weight as of 31st December 2016 is provided below: Risk Weights Government s and central banks Administrative bodies and NPO Authorised persons and banks Past Margin Financing Corporates Retail due items Investments Securitisation Other assets Off-balance sheet commitments Total Exposure after netting and Credit Risk Mitigation 0% - Total Risk Weighted Assets 20% 1,170,144 1,170, ,029 50% - 100% % 12,354 12,354 18, % - 300% 75,782 75, , % % - 714% (include prohibited exposure) Average Risk Weight Deduction from Capital Base Exposures after netting and credit risk mitigation 3,935 3,935 28,096 20% 150% 320% 40% Amounts in SAR' 000 Pillar III Disclosure Report Page 19

20 Disclosure on credit risk s weight as of 31st December 2015 is provided below: Pillar III Disclosure Report Page 20

21 APPENDIX IV: DISCLOSURE ON CREDIT RISK S RATED EXPOSURE Disclosure on credit risk s rated exposure as of 31st December 2016 is provided below: Amounts in SAR' 000 Long term Ratings of counterparties Credit quality step Unrated Exposure Class S&P AAA TO AA- A+ TO A- BBB+ TO BBB- BB+ TO BB- B+ TO B- CCC+ and below Unrated Fitch AAA TO AA- A+ TO A- BBB+ TO BBB- BB+ TO BB- B+ TO B- CCC+ and below Unrated Moody's Aaa TO Aa3 A1 TO A3 Baa1 TO Baa3 Ba1 TO Ba3 B1 TO B3 Caa1 and below Unrated Capital Intelligence AAA AA TO A BBB BB B C and below Unrated On and Off-balance-sheet Exposures - - Governments and Central Banks - - Authorised Persons and Banks - - 1,170, Corporates - - Retail - - Investments - - Securitisation - - Margin Financing - 12,354 Other Assets - 79,717 Total - - 1,170,144-92,071 Short term Ratings of counterparties Credit quality step Unrated Exposure Class S & P A-1+, A-1 A-2 A-3 Below A-3 Unrated Fitch F1+, F1 F2 F3 Below F3 Unrated Moody s P-1 P-2 P-3 Not Prime Unrated Capital Intelligence A1 A2 A3 Below A3 Unrated On and Off-balance-sheet Exposures Governments and Central Banks Authorised Persons and Banks - 1,170,144 - Corporates Retail Investments Securitisation Margin Financing ,354 Other Assets ,717 Total - 1,170,144 92,071 Pillar III Disclosure Report Page 21

22 Disclosure on credit risk s rated exposure as of 31st December 2015 is provided below: Pillar III Disclosure Report Page 22

23 APPENDIX V: DISCLOSURE ON CREDIT RISK MITIGATION Disclosure on credit risk mitigation as of 31st December 2016 is provided below: Amounts in SAR' 000 Exposure Class Exposures before CRM Exposures covered by Guarantees/ Credit derivatives Exposures covered by Financial Collateral Exposures covered by Netting Agreement Exposures covered by other eligible collaterals Exposures after CRM Credit Risk On-balance Sheet Exposures Governments and Central Banks Authorised Persons and Banks 1,170,144 1,170,144 Corporates Retail Investments Securitisation Margin Financing 12,354 12,354 12,354 Other Assets 79,717 79,717 Total On-Balance sheet Exposures 1,262,215 12,354 1,262,215 Off-balance Sheet Exposures OTC/Credit Derivatives Exposure in the form of repurchase agreements Exposure in the form of securities lending Exposure in the form of commitments Other Off-Balance sheet Exposures Total Off-Balance sheet Exposures Total On and Off-Balance sheet Exposures 1,262,215 12,354 1,262,215 Pillar III Disclosure Report Page 23

24 Disclosure on credit risk mitigation as of 31st December 2015 is provided below: Pillar III Disclosure Report Page 24