Framework for adopting a capital charge for market risk in Rwanda and training of the staff of the NBR and the banks
In recent years, the National Bank of Rwanda (NBR) has undertaken a number of initiatives to strengthen its regulatory framework for financial institutions. These include the development of a risk-based supervisory framework, enhancement of its off-site surveillance system and initiation of plans to develop a framework for the practice of consolidated supervision. The NBR wanted to further strengthen its capital adequacy framework by adopting a capital charge for market risk.
The main objective of this study was to assist the National Bank of Rwanda (NBR) to develop a framework to adopt a capital charge for market risk.
The specific objectives are to:
- Make an overview of market risks inherent to the banking sector;
- Elaborate guidelines and methods for identification, measurement, analysis and management of market risks;
- Identify banking products/instruments in the trading and banking books which carry market risk;
- Calculate a capital charge for market risk using the Standardized Measurement Approach given by the Basel Committee on Banking Supervision;
- Make a report and presentation on the latest regulatory perspectives and other significant considerations affecting capital adequacy requirements for banks and other financial institutions;
- Use real-world financial statements and prepare a computerized model to illustrate the computation of a capital charge for market risks;
- Write a policy paper on development of a framework to adopt a capital charge for market risk;
- Elaborate guidelines on a capital charge for market risk to be introduced to the staff of both the NBR and banks;
- Write a draft proposal for an amendment to the existing capital adequacy requirement.
Services provided by CESS
- Survey on financial institutions;
- Identify the products/instruments on the banks’ trading and banking books which carry market risk;
- Write a draft report on guidelines and best practices (identification, measurement, monitoring and control of market risks);
- Develop an Excel spreadsheet for the calculation of market risk capital charge;
- Perform training and dissemination seminars for staff of the NBR, commercial banks and other financial institutions
- Draft report “Overview on market risk management practices and market risk-sensitive financial instruments in Rwanda’s banking sector”;
- Draft report “Capital Adequacy Requirement for Market Risk”;
- Draft report on “ Interest rate risk management”;
- Excel spreadsheet for the calculation of market risk capital charge and the capital adequacy ratio;
- Training of the staff of the NBR and the financial institutions on the proposed market risk capital charge framework..