32. Each bank should operate above the minimum capital requirements set by the Central Bank. Each bank should have a capital plan approved by the Board. The objective of capital planning is to ensure that:

33. The ICAAP should be designed as a tool to adequately support these objectives. Each bank’s management is expected to develop and maintain an appropriate strategy that ensure the level of capital and the process to estimate such level should be commensurate with the nature, scope, scale, size, complexity, and risks of each bank.

34. The ICAAP should be forward-looking taking into account both internal and external drivers over a period covering three (3) to five (5) years. The capital planning should take into account the bank’s business plan, its strategic development and the economic environment.

35. The multi-year capital forecast should be assessed and calibrated through two perspectives:

36. Both perspectives should be function of the bank’s business plan. In addition, the second perspective should incorporate a more granular, specific, and accurate measurement of risks. Both perspectives should take into account the current, expected economic environment, and consider the occurrence of stressed events.

37. If the bank identifies a shortfall in capital pertaining to either Pillar 1 or Pillar 2. It is expected to consider measures to maintain adequate capitalisation, reverse the trend, review its strategy, and risk appetite.

38. For each internal stress test scenario for capital planning purposes, each bank is expected to consider credible, quantifiable management actions that the bank could practically take to mitigate any capital impact of stress scenarios. Such mitigating actions for ICAAP stress scenarios may differ from actions related to recovery planning. The timing and execution of these management actions should be supported by appropriate trigger points of the bank’s capital position, which may be informed by their internal risk appetite for capital adequacy. When the bank’s capital ratios fall below its internal risk appetite, it is expected that the bank is able to execute the necessary measures, i.e. the bank should explain how the capital adequacy would be ensured/ restored (e.g. via a capital contingency plan). In assessing the effectiveness of a management action, each bank should also consider the perceived reputational impact (e.g. as viewed by the market, customers, government etc.) on taking such an action in a stress. The results should be disclosed in the ICAAP report with and without those management actions that have been approved by the bank’s Board.

39. If the bank plans the increase of its capital base (e.g. capital issuances, rights issues, reduction in the equity, etc.), the bank may consider the capital increase in its capital planning. The bank should only consider capital increases that have obtained Senior Management approval and form part of the bank’s official capital plan and that have been discussed with the Central Bank. A bank that considers capital increases in it capital planning has to perform an additional stress test scenario to analyse the impact if the capital increase does not materialise.

40. The following elements should be included in the ICAAP report or related appendix:

41. Banks are required to fulfill internal risk appetite requirements in the bank’s self-assessment of Pillar 1 and Pillar 2 minimum regulatory capital requirements. Banks should fulfill the minimum capital requirements plus capital buffer requirements under business as usual (BAU) conditions. Under stress testing (ST) banks should fulfill the minimum capital requirements without the requirement to meet buffer requirements.

42. The capital planning should not be limited to risk-based capital ratios but should also consider the leverage ratio of the bank. Bank should analyse and consider unaccounted foreseeable events in the capital plan, e.g. regulatory changes like the revised standardised approaches for credit, market and operational risk.