CA-A.3.2

Banks are allowed two classes of capital instruments (see section CA-2.2) to meet their capital requirements for credit risk and market risk, as set out below:

Tier 1: Core capital — Supports the calculation of credit risk weighted assets and at least 28.57% of market risk.

Tier 2: Supplementary capital — Supports credit risk and market risk subject to limitations.

CA-A.3.3

In measuring credit risk for the purpose of capital adequacy, banks are required to apply a simple risk-weighted approach through which claims of different categories of counterparties are assigned risk weights according to broad categories of relative riskiness.

CA-A.3.4

The minimum capital requirement for equities is expressed in terms of two separately calculated charges, one relating to the "specific risk" of holding a long position in an individual equity, and the other to the "general market risk" of holding a long position in the market as a whole.

CA-A.3.5

The measurement of the foreign exchange risk involves, as a first step, the calculation of the net open position in each individual currency including gold and as a second step, the measurement of the risks inherent in the bank's mix of assets and liabilities positions in different currencies.

CA-A.3.6

Banks should adopt either the simplified approach to calculate their commodities risk and the resultant capital charges or the maturity ladder approach. Where banks have Salam and Parallel Salam contracts, the maturity ladder approach must be used.

CA-A.3.7

On a consolidated basis, the Agency has set a minimum Risk Asset Ratio ("RAR") of 12.0% for all locally incorporated banks. Furthermore, on a solo basis, the parent bank is required to maintain a minimum RAR of 8.0% (i.e. unconsolidated).

CA-A.3.8

All locally incorporated banks must give the Agency immediate written notification of any actual breach by such banks of either or both of the above RARs. Where such notification is given, the bank must also provide the Agency; no later than one calendar week after the notification, with a written action plan setting out how the bank proposes to restore the relevant RAR(s) and report on a weekly basis thereafter on the bank's relevant RAR(s) until such RAR(s) have reached the required target level(s).

CA-A.3.9

The Agency considers it a matter of basic prudential practice that, in order to ensure that these RARs are constantly met, banks set up internal "targets" of 12.5% (on a consolidated basis) and 8.5% (on a solo basis) to warn them of a potential fall by the bank below the Agency's required minimum RARs. Where a bank's capital ratio falls below its target ratio, the General Manager should notify the Agency immediately, however, no formal action plan will be necessary. The General Manager should explain what measures are being implemented to ensure that the bank will remain above its minimum RAR(s).

CA-A.3.10

The bank will be required to submit the PIRI forms to the Agency on a monthly basis, until the RAR(s) exceeds its target ratio(s).

CA-A.3.11

For Full Commercial Bank and Offshore Banking Unit licensees, deposit liabilities should not exceed 20 times the respective bank's capital and reserves.

CA-A.3.12

For Investment Bank licensees, deposit liabilities should not exceed 10 times the respective bank's capital and reserves.