Central Bank proposes expanding banking solvency risk base

The Central Bank has proposed modifications to the Prudential Regulations for Capital Adequacy. While the minimum solvency coefficient will remain unchanged at 10%, the proposal expands the base of risks that financial institutions must back with their equity by explicitly incorporating operational risk into the capital adequacy calculation.

Previously, the solvency coefficient primarily accounted for credit risk, interest rate risk, and foreign exchange risk. The new methodology adds operational risk, which includes potential losses resulting from failures in processes, people, systems, external events, and information technology.

This change means that although the 10% floor remains the same, the amount of technical equity required to maintain that ratio may increase depending on an entity's specific exposure to operational risks. Consequently, two banks with identical current solvency coefficients may face different capital requirements once the new methodology is implemented, based on their individual operational risk profiles.