Business Challenge:
The client is the 3rd Largest Bank in UAE with an asset size of over 30 Billion USD and profits of over 2 Billion USD. The bank had a diversified portfolio with even distribution across various segments and geographies including international operators.
Aptivaa's scope of engagement with the client included developing an internal capital adequacy assessment program (ICAAP) document in accordance with guidelines issued by Central Bank of UAE, to recommend an ICAAP management structure and to develop measurement framework and related documentation to support regular ICAAP monitoring and submission.
Our Approach
During the process of ICAAP development we faced several challenges from aspects like people (sparsely staffed bank project team, absence of organized risk management function), processes (Data inconsistency, non - availability of detailed business plans) and systems (Weak MIS, multiple source systems). To overcome these challenges and ensure an exhaustive coverage of all regulatory guidelines, a modular approach, with seven main modules and several sub modules, was followed. These functional modules were further spread across two phases which have been mentioned below.
Build up Phase: This phase involved a product and structure oriented review of the bank and the drafting of ICAAP management structure, roles, policies and process. A data requirement analysis for both qualitative and quantitative data was also done followed by an assessment of risk management, corporate governance and capital management policies of the bank.
Implementation Phase: A risk capital strategy was formulated for the bank by drafting risk appetite statement and risk tolerance limits. The strategy was then finalized through discussions and workshops with the bank officials. This was followed by risk assessment of the various qualitative and quantitative risks such as reputation risk, strategic risk, liquidity risk, Interest rate risk in banking books etc. Stress tests (sensitivity and scenario based) were conducted on the risk capital charges calculated. Based on the results of the risk assessment and stress testing a capital budgeting policy and risk based capital allocation framework was formulated for the bank. Finally the ICAAP document was prepared for supervisory review in accordance with the guidelines and format suggested by the local regulatory authority.
Business Benefit
Aptivaa developed a robust ICAAP framework for the client with detailed documentation and in strict compliance with the local regulatory guidelines. The bank was able to incorporate Pillar II risks into the decision making process. This gave a better insight to the board and senior management on the level and directions of risk and helped them to develop a more robust risk based capital management strategy. | 
