Al Rajhi Banking and Investment : Financial Reporting Document

Pillar III Disclosures

Al Rajhi Bank

December 31, 2021

		Section			#		Tables and templates		Applicable
	1.	Overview of Risk			OVA		Bank risk management approach		Yes
			OV1		Overview of RWA
		Management and RWA
				KM1		Key Metrics
					LI1		Differences between accounting and regulatory scopes of consolidation and mapping of financial statements
	2.	Linkages Between				with regulatory risk categories
		Financial Statements and			LI2		Main sources of differences between regulatory exposure amounts and carrying values in financial		Yes
		Regulatory Exposures				statements
					LIA		Explanations of differences between accounting and regulatory exposure amounts
	3.	Composition of Capital			CC1		Composition of regulatory capital		Yes
			CC2		Reconciliation of regulatory capital to balance sheet		Yes
		And TLAC
				CCA1		Main features of regulatory capital instruments and of other TLAC-eligible instruments		Yes
	4.	Leverage Ratio			LR1		Summary comparison of accounting assets vs leverage ratio exposure		Yes
			LR2		Leverage ratio common disclosure template		Yes
					LIQA		Liquidity risk management		Yes
	5.	Liquidity			LIQ1		Liquidity Coverage Ratio		Yes
					LIQ2		Net Stable Funding Ratio		Yes
					CRA		General information about credit risk
					CR1		Credit quality of assets
					CR2		Changes in stock of defaulted Financing and debt securities
					CRB		Additional disclosure related to the credit quality of assets
					CRC		Qualitative disclosure requirements related to credit risk mitigation techniques		Yes
					CR3		Credit risk mitigation techniques - overview
					CRD		Qualitative disclosures on Banks' use of external credit ratings under the standardised approach for credit risk
	6.	Credit Risk			CR4		Standardised approach - credit risk exposure and Credit Risk Mitigation (CRM) effects
					CR5		Standardised approach - exposures by asset classes and risk weights
					CRE		Qualitative disclosures related to IRB models
					CR6		IRB - Credit risk exposures by portfolio and PD range
					CR7		IRB - Effect on RWA of credit derivatives used as CRM techniques		No
					CR8		RWA flow statements of credit risk exposures under IRB
					CR9		IRB - Back testing of probability of default (PD) per portfolio
					CR10		IRB (specialised lending and equities under the simple risk weight method)
					CCRA		Qualitative disclosure related to counterparty credit risk
					CCR1		Analysis of counterparty credit risk (CCR) exposure by approach
					CCR2		Credit valuation adjustment (CVA) capital charge
					CCR3		Standardised approach of CCR exposures by regulatory portfolio and risk weights
	7.	Counterparty Credit Risk			CCR4		IRB - CCR exposures by portfolio and PD scale		No
					CCR5		Composition of collateral for CCR exposure
					CCR6		Credit derivatives exposures
					CCR7		RWA flow statements of CCR exposures under the Internal Model Method (IMM)
					CCR8		Exposures to central counterparties
					SECA		Qualitative disclosure requirements related to securitisation exposures
					SEC1		Securitisation exposures in the Banking book
	8.	Securitisation			SEC2		Securitisation exposures in the trading book		No
			SEC3		Securitisation exposures in the Banking book and associated regulatory capital requirements - Bank acting as
						originator or as sponsor
					SEC4		Securitisation exposures in the Banking book and associated capital requirements - Bank acting as investor
					MRA		Qualitative disclosure requirements related to market risk		Yes
					MRB		Qualitative disclosures for Banks using the Internal Models Approach (IMA)		No
	9.	Market Risk			MR1		Market risk under standardised approach		Yes
			MR2		RWA flow statements of market risk exposures under an IMA		No
					MR3		IMA values for trading portfolios
					MR4		Comparison of VaR estimates with gains/losses
	10.	Operational Risk					Operational Risk Qualitative disclosure		Yes
		Qualitative Disclosure
	11. Profit Rate Risk in the					Quantitative /Qualitative disclosure		Yes
		Banking Book

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1. Overview of Risk Management and RWA

OVA: Bank risk management approach

1. Business model determination and risk profile
   Deeply rooted in Islamic Banking principles, the Shariah compliant Al Rajhi Bank has nine subsidiary companies and two foreign Branches, which together with the Bank are referred to as the 'Al Rajhi Bank Group' (ARB). The Group continues to be instrumental in bridging the gap between modern financial demands and intrinsic Islamic values, whilst spearheading new product development and numerous industry standards.
2. The Risk Governance structure
   Risk Management is a shared responsibility across the Bank. The Credit & Risk Group has primary responsibility for managing the Risk Management Framework across the Bank, and to measure, monitor and report key risks. The Group provides professional advice across all functional areas and is integral to the operations and culture of the Bank.
   The Bank adopts sound governance principles for Risk Management. At the Board level, Board Risk Management Committee (BRMC) - chaired by non-executive Board member - has oversight of Risk Management function across the Bank. The Credit & Risk Group, headed by the Group CRO, monitors and reviews risks on a day-to-day basis. The Group CRO has direct access to the BRMC and provides risk viewpoint on relevant matters.

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1. Channels to communicate, decline and enforce the risk culture
   Maintaining a strong Risk Culture is critical to the strategy and business activities of
   ARB. The Bank's Risk Culture requires that each business unit and each employee of the Bank is accountable for identifying and managing the risks embedded under their responsibilities. Overall Governance structure is divided into two levels - Management Level Committees and Board Level Committees. The comprehensive Governance structure provides adequate opportunity to communicate the risk culture.
2. The scope and main features of risk measurement systems
   The Bank has structured a number of financial products which are in accordance with Sharia law in order to meet the customers demand. These products are all classified as financing assets in the Bank's consolidated statement of financial position. In measuring credit risk of financing at a counterparty level, the Bank considers the overall credit worthiness of the customer based on a proprietary risk methodology. This risk rating methodology utilizes a 10-point scale based on quantitative and qualitative factors with seven performing categories (rated 1 to 7) and three non- performing categories (rated 8 - 10). The risk rating process is intended to advise the various independent approval authorities of the inherent risks associated with the counterparty and assist in determining suitable pricing commensurate with the associated risk.
   Operational Risk: The Operational Risk management processes in the Bank encompasses Risk Control Self-Assessment, Operational Loss Database and Key Risk Indicators which are designed to function in a mutually reinforcing manner.
   Market Risk: Profit Rate Risk arises from the possibility that the changes in profit rates will affect either the fair values or the future cash flows of the financial instruments. The Board has established commission rate gap limits for stipulated periods. The Bank monitors positions daily and uses gap management strategies to ensure maintenance of positions within the established gap limits.
3. Process of Risk information reporting provided to the Board and Senior Management
   Risk Management Committee (RMC) with membership from Group Heads of all business functions, Risk, Finance, HR, Compliance & Operations chaired by CEO to review and monitor key enterprise risks areas and exceptions on a periodic basis.
   At the Board level, Board Risk Management Committee (BRMC) has oversight of Risk Management function across the Bank.

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1. Qualitative information on stress testing
   The Bank adopts Integrated Stress Testing Approach, in which different types of stressed events are inter-linked and are jointly considered for their impact on the financials and key regulatory ratios. The approach determines the financial impact of both systemic risk and idiosyncratic risk scenarios on Bank's capital adequacy simultaneously across all three stress severity levels - Mild, Moderate and Severe. Besides, the Bank has comprehensive Liquidity Stress Testing in alignment with Internal Liquidity Adequacy Assessment Plan (ILAAP) guidelines issued by SAMA. The Bank has comprehensive and specific Management Action Plans to ensure that capital, leverage ratios are managed well within the Risk Appetite thresholds if the key ratios come under unexpected pressure.
2. The strategies and processes to manage, hedge and mitigate risks
   On annual basis, key Risks are identified and plan of actions are listed out to mitigate those risks. The identification of Key Risks and its mitigation plans are discussed in Management Committee meetings and presented to BRMC and to the Board of Directors on an ongoing basis. The mitigation plans are reviewed regularly and the implementation of the action plans are monitored.

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