FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in Qatar

The supervisory and regulatory framework in Qatar consists of::

• Qatar Central Bank (QCB)
• Qatar Financial Centre Regulatory Authority (QFCRA)

FRSGlobal in Qatar

Despite the recent global financial crisis, the Qatari economy has maintained its stable economic growth of several years. The overall stability of the Qatari economy assisted the country to build confidence in the financial markets. This stability is attributed to measures taken by the regulatory authorities throughout the recent global financial crisis to protect the banking sector and support the financial system.

Timely and pro-active intervention by the government at appropriate times has enabled the country to facilitate the banking sector to continue lending, enhance liquidity and mitigate tight credit conditions.

Also the sound banking system in the country with high profitability and establishment of the Qatar Financial Centre, a centre with regulations of international standards, is creating a pool of investment opportunities for Qatar.

The biggest challenge for Qatar is to address the legal framework in tackling money laundering and terrorist financing activities. Also to explore advanced banking perspectives ensuring better a control system and supervision.

Regulatory Environment — Qatar

Statutory

Financial reporting
Financial reporting is mainly concerned with information on profit and loss and balance sheet position. Banks are required to submit these reports to the Qatar Central Bank (QCB) on monthly basis. In addition, daily reports on statement of gross and average deposits (reserve requirements) are also required to be submitted.

Prudential

Capital Adequacy reporting
Capital adequacy reporting in Qatar is based on the Basel II framework. All banks are required to submit reports on calculation of capital charge for credit risk, market risk and operational risk in addition to the calculation of capital adequacy ratio. Credit risk and market risk calculations are based on the standardised approach and operation risk is calculated using the basic indicator approach. The QCB requires these reports to be submitted on monthly basis.

Liquidity reporting
These reports include information of the liquidity ratio that banks are required to calculate to mitigate liquidity risk and manage liquidity crisis. These reports are required to be submitted on monthly basis.

Prudential returns
The Qatar Financial Regulatory Authority (QFCRA) collects prudential returns from its Authorised Firms doing business in the Qatar Financial centre (QFC) on quarterly basis. These returns cover information on balance sheet position, capital adequacy calculations, large exposures, market risk calculations in trading and non trading book etc. In addition, the QFCRA also collects supplemental statistics on a quarterly basis from banks and asset management Firms.

Statistical

Financial stability reporting
The QCB requires returns on financial statistics to be submitted on monthly basis. These reports cover information on assets and liabilities of banks in terms of foreign currency, profit and loss account, data on securities, deposits, and credit exposures, collateral coverage, sources etc.

Interest rate reporting
These reports are based on the rate of returns on deposits and credit facilities provided by all banks and are required to be reported monthly.

Transactional

Balance of payment reporting
Balance of Payment (BOP) reporting covers quarterly returns on purchase or sale of foreign exchange, foreign currency transactions, and international investment positions of the country.

Nostro reconciliation report
This report relates to details of foreign bank accounts and is required to be submitted to the Qatar Central Bank for easy cash management and fraud detection.

Suspicious Transaction Reports (STR)
Banks are required to submit these standard reports in case of suspicious transactions observed that might involve money laundering or terrorist financing. These reports are required to be submitted to the Qatar Financial Information Unit (FIU) on periodic basis.

Asset & Liability Management (ALM)

ALM is being embraced as more than just a tool to monitor and manage interest rate risk in banking books. It is a process for managing balance sheets against other risks that affect earnings and portfolio valuations of banks, shifts in customer behaviour, future balance sheet growth and impact of business strategies (pricing, hedging, growth and planning).

In light of the recent financial crisis, firms of all shapes and sizes are re-evaluating their ALM model. In order to earn an adequate return, the need to assess and mitigate the adverse value and income impact of changes in the market has become even more vital.

So how do different types of financial institutions manage their ALM requirements today?

Large, tier 1 firms typically develop their ALM systems in-house; a luxury few smaller firms can’t afford. These systems typically include sophisticated and finely tuned functionality for Value exposure, Value at risk, Dynamic simulation, Earnings at risk and Treasury view.

In the past, smaller firms have found solutions for meeting ALM requirements to be over-complicated, difficult to integrate with incumbent systems, resource-dependent and cost-prohibitive. For these reasons they have resorted to using alternative methods such as spreadsheets or independent consultants, neither of which is ideal.

Until now the sheer cost of developing and supporting an in-house ALM system has been prohibitive to smaller firms but the need to have accurate visibility into the future position of the firm is critical.

Our heritage and in-depth knowledge of market have enabled the configuration of our solution to be so flexible that it meets the needs of ALL firms; from those with highly complex derivatives to those with a vanilla approach.

Our ALM solution provides a comprehensive range of capabilities that cover the following areas:

• Value exposure / market risk (static)
  For a consistent and comprehensive assessment of the adverse value impact of changes in market risk factors based on common pricing models using gap analysis and analytical/numerical stress testing analysis
• Value at risk / market risk (static)
  To calculate the loss potential of a specific portfolio or the total balance sheet over a given time horizon and confidence level
• Dynamic simulation (“what if” NII analysis)
  To assess and manage income, using a dynamically modelled balance sheet and market environment
• Earnings at risk (interest rate models)
  To calculate the potential to lose income, and to value it in a dynamically modelled balance sheet and market environment
• Treasury view
  To assess the exposure and risk position of Treasury, using the risk management techniques applied by the firm

And for the smaller firm

Our rich ALM solution offers a functionally that require immediate return on investment by taking a ‘compact’ approach with risk management features that absorb complexity. Along with evaluating a mismatch between assets and liabilities, our ALM solution also manages risks arising due to liquidity and interest rate in banking books.

With our ALM solution firms can:

• Quantify the value impact of interest rate changes over the total balance sheet based on regulatory requirements
• Conduct stress testing / value impact of any risk factor change over the total balance sheet
• Benefit from robust processes with audit ability and traceability, reverse processing from results to initial input using modelling (strategies & scenarios)
• Meet processing times / frequency of analysis and reduce manual work
• View Balance Sheet value impacts from interest rate moves in terms of sensitivity, liquidity and margin
• Utilise a simple financial analysis framework
• Make use of a flexible reporting tool and standard export to standard formats (Excel, PDF, HTML, XML)

FRSGlobal 6-step process for ALM

Liquidity Risk Management

With lessons learnt from the recent liquidity crunch, banks are going beyond simple static financial ratios and gap reports as measures of liquidity risk management.

Recent efforts by the European Banking Authority – EBA (formerly Committee of European Banking Supervisors- CEBS), the Basel Committee on Banking Supervision (BCBS) and the UK FSA in terms of principles and recommendations have set greater emphasis on liquidity risk management.

Since the Basel Committee on Banking Supervision issued its paper on ‘Principles for Sound Liquidity Risk Management and Supervision’, banks have been adopting liquidity stress testing scenarios to simulate bank-specific and system risks to their balance sheets.

By modelling their liquidity contingency plans against such scenarios, the measure of a bank’s cash-flow survival horizon can be derived, giving a statement of the effectiveness of its plan against such crisis.

For effective liquidity risk management the Qatar Central Bank (QCB) collects returns on the liquidity adequacy ratio and maturity ladder table on assets and liabilities. These reports assist supervisory authorities in determining the mismatch between assets and liabilities, quantity and sources of funding under various stress scenarios, and potential concentration risk due to funding sources.