Internal Capital Adequacy Assessment Process (ICAAP) alongwith Supervisory Review and Evaluation Process (SREP) is a key element of Pillar II under Basel II guidelines. Though it has its roots in regulatory compliance, it has gained importance as a comprehensive exercise for internal risk and capital adequacy assessment.ICAAP is a principles-based framework and is not prescriptive in assessment of capital requirement for material risks. This explains wide range of methodologies used for assessment of Pillar II risks as well as quantification of capital requirement for these risks. This is where our expertise in developing and validating ICAAP for multiple banks can assist your institution.
We assist the institution in formulation of risk appetite statement and articulation of risk tolerance for different risk types. We translate risk appetite statement into structural risk limits that will be used on ground and periodically monitored.
Our quantitative frameworks for assessing capital requirement for borrower concentration, industry concentration, geographic concentration and country risk concentration include simulation based approach (Multi-factor Monte Carlo Simulation based model), closed-form solutions (such as Granularity Adjustment) as well as ad-hoc measures (HHI based models). We also assist in quantifying capital requirement for other material risks such as residual credit risk, IRRBB etc. Quantitative framework for concentration risk is also supplemented with a qualitative scorecard.
Qualitative scorecards are used to assess Pillar-II risks such as reputational risk, strategic risk etc.
We help institutions in designing, implementing and enhancing existing stress testing framework to align it with regulatory requirements.
Our capital modelling expertise facilitates capital adequacy assessment for Pillar-I and Pillar-II risks (such as credit concentration and residual credit risk) in a single framework.
We have helped multiple banks in development and validation of ICAAP framework. Use our understanding of current market practices for validating adequacy of existing ICAAP framework.