General Requirements
ST-1.5.1
Islamic bank licensees must adopt an integrated approach to stress-testing and conduct stress tests on a firm-wide basis and on a consolidated basis where applicable, providing a spectrum of perspectives at product-, business- and entity-specific levels. Where the bank is part of a larger banking group, its stress tests must also take into account the potential spillover effects and inter-dependence among members of the group.July 2018ST-1.5.2
Stress tests must be regularly conducted at least on a biannual basis. Tests must consider the nature of the risks involved and the purpose of the stress tests. Stress scenarios must be coherently developed so that risks that are inherently linked (e.g. market risk and credit risk) can be assessed together across portfolios and across time. The bank may refer to Section ST-2.2 for any available guidance on stress-testing for specific risks.
July 2018ST-1.5.3
The
Islamic bank licensee may also conduct ad hoc stress tests on specific areas whenever this is warranted. The situations which warrant ad hoc stress testing may include market volatility, changes to the risk profile of large counterparties, deteriorating economic conditions domestically or globally, political events, new product development or new market entry, significant changes in business operations and changes in applicable laws and regulations.July 2018ST-1.5.4
The scope of a stress test exercise must reflect the significant activities undertaken by the
Islamic bank licensee and consider all material risks affecting the bank. The assessment of material risks must include the following major risk categories or activities:(a) Credit risk(b) Market risk(c) Rate of return risk in the banking book(d) Liquidity Risk, including funding liquidity risk;(e) Operational risk; and(f) Other material risks.July 2018ST-1.5.5
Islamic bank licensees must also take into consideration the specifications of Shari'a contracts in the identification and assessment of material risks.July 2018
