11.The Central Bank has followed the international standards²³ set out by the BCBS and identified four key principles of supervisory review.

Principle 1: Banks must have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.

12.Banks must be able to demonstrate that the decided minimum capital levels are well founded and that these levels are consistent with their overall risk profile and current operating environment. In assessing capital adequacy, bank management needs to be mindful of the particular stage of the business cycle in which the bank is operating. Rigorous forward-looking stress testing that identifies possible events or changes in market conditions that could adversely affect the bank must be performed. Bank management clearly bears the responsibility for ensuring that the bank has adequate capital to support its risks.

13.The seven main features of a rigorous process are as follows:

1. i.Active board and senior management oversight;
2. ii.Appropriate policies, methodologies for assessment of capital needs, procedures and limits;
3. iii.Sound capital assessment;
4. iv.Comprehensive and timely identification, measurement, mitigation, controlling, monitoring and reporting of risks;
5. v.Appropriate management information systems (MIS) at the business and firm-wide level;
6. vi.Comprehensive internal controls;
7. vii.For the completion of ICAAP, regulatory requirements (Pillar I) is required as the first step of computation.

It should also be noted that under no circumstances could Pillar I and Pillar II be netted against each other. They are both separate requirements.

²³ BCBS128 and BCBS157