PMA Organizes Workshop for Banks on Pillar II of Basel II Framework

Ramallah, January 18, 2015

The Palestine Monetary Authority (PMA) held a workshop on Pillar II of the Basel II requirements entitled “Economic Capital and the Internal Capital Adequacy Assessment Process (ICAAP)”. Attending were 35 employees from the supervisory departments of banks operating in Palestine, in particular from risk, compliance and internal audit departments and members of bank committees concerned with the implementation of the Basel requirements. The workshop came as part of a series of workshops which the PMA began organizing since end of 2012, concomitant with the launch of the project for the implementation of Basel II guidelines and their updates for all banks operating in Palestine in line with best international practices regarding capital solvency, risk management and governance.

The Chief of Domestic Banks Division at the Supervision and Inspection Department, Mr Mustafa Abu Salah, opened the workshop by elaborating its key objective; namely promoting the concepts, mechanisms and methodology of Internal Capital Adequacy Assessment Process (ICAAP) for the purpose of helping banks implement Pillar II of the accords of the Basel Committee on Banking Supervision. The significance of the ICAAP was highlighted to the participants in a manner contributing to promoting bank capacity in defining, measuring and monitoring of risks to which banks are exposed, as well as developing internal methods to assess capital adequacy required to face such risks as in accordance with the nature of operation of each bank.

Additionally, the participants were introduced to the latest developments of the project for the implementation of Basel II and the related updates. Participants were encouraged to come forward with their enquiries and suggestions regarding the so-far executed stages of the project, in particular in relation to working papers on credit risks, market risks and operating risks and Pillar II of the Basel accords -which have already been the subject of earlier discussion with the banks- and the Quantitative Impact Study (QIS) of the implementation of Basel II and its effects. The participants were also briefed on the coming project implementation steps and reminded of the significant role banks play in achieving project objectives.

The workshop was presented by Mr Faidon Kalfaoglou who was appointed by the World Bank as PMA adviser for the project for the implementation of Basel II. Numerous key concepts and themes were addressed and expounded, including a general preview of Pillar II of Basel II. A Basic concepts and terminology of ICAAP were expanded on, including economic capital, risk cartography and governance of internal capital adequacy evaluation, among others. Moreover, the significant role of stress testing in the evaluation of solvency and capital adequacy was highlighted. Mr Mustafa Abu Salah gave a detailed presentation on internal controls and the role played by the various supervisory bank departments including risk management, internal audit and compliance.

It is worth mentioning that the PMA launched the project for the implementation by banks operating in Palestine of the Basel II requirements and their following updates in Q1 of 2013. The project enjoyed the assistance of the expert appointed by the World Bank with the purpose of improving and promoting good governance and risk management in the Palestinian banking system in a manner contributing to boost solvency, increase the capacity to face risks associated with the banking business, maintain the soundness and stability of the banking system and protect the funds of the public. The pursuit of these goals requires banks to boost efforts to ensure the availability of all necessary tools, systems and policies which are suited to the exclusive nature of the Palestinian situation. The project is expected to be completed during the current year 2015.