Summary of Financial Services Authority Circular regarding Weighted Assets Calculation According to
Operational Risks Using the Standard Approach for Commercial Banks
1. The Background of Financial Services Authority Circular regarding Weighted Assets Calculation According to Operational Risks Using the Standard Approach for Commercial Banks is in order to meet the Basel III Reforms standard in 2017. Approach which to calculation of risk weighted assets (ATMR) applied for operational risk is to use a simple standard approach that , comparable, and more sensitive to risk management.
2. The Minimum Capital for Operational Risk (MMRO) is the multiplication between Business Indicator Components (MNH) and the Internal Loss Multiplier Factor (FPKI).
MMRO = MNH x FPKI = (IB x a) x FPKI
3. To perform RWA calculation for operational risk in KPMM calculations, the Bank uses a standard approach with the following formula:
RWA of Operational Risk Using the Standard Approach = 12.5 x MMRO
4. KIB is a multiplication between Business Indicators (IB) and marginal coefficient (a). IB is calculated by considering:
a. components of interest, rent and dividends (KBSD);
b. service component (KJ); and
c. financial component,
for 3 (three) calendar years. While the marginal coefficient (a) is a number of (12%, 15%, or 18%) multiplied by IB to get the KIB results.
5. FPKI is a number multiplied by KIB to get MMRO. The amount of FPKI depends on the amount of operational risk loss experienced by the bank during the previous 10 (ten) years.
6. Banks must submit reports as follows:
a. Report on the Implementation of Risk Management for Operational Risks; and
b. Calculation Report for Operational Risk,
Then publish it in accordance with the provisions of transparency and publication of bank statements.
7. SEOJK ATMR Operational Risk was first reported and taken into account in the calculation of the KPMM ratio since January 1, 2023.
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