OREANDA-NEWS. May 12, 2014. ICBC has obtained the approval from the China Banking Regulatory Commission (CBRC) to become one of the first commercial banks to implement advanced capital management approaches.

ICBC will calculate the risk-weighted assets and capital adequacy ratio based on the internal model approach and constantly apply the risk measurement result in the internal management, a signal that its risk control will be lifted to a new high.

An official with ICBC indicated that ICBC had spent 10 years in preparing for the application of advanced capital management approaches, going through three stages including design, development, and application and improvement. Currently, ICBC has completed the preparation for and application of internal rating approaches of credit risk, internal model approaches of market risk, advanced measurement approaches of operational risk, Pillar 2 capital adequacy assessment management and Pillar 3 information disclosure.Meanwhile, ICBC has improved its governance structure, regulations, IT system and evaluation system for the implementation of advanced approaches, extensively applied the measurement result in operation management, and implemented the concept of balance between risk and return and capital-intensive development, which has greatly sharpened the core competitiveness of the Bank in risk management.

During the preparation for the advanced capital management approaches, ICBC developed an integrated risk measurement model system covering all risk exposures based on advanced practices in the world and has applied the measurement result in decision-making and business management. Taking the internal rating of credit risk for example, since the launch of the internal rating approaches in 2004, ICBC  integrated the data about credit, operation, IT and finance, refined the information of financial statement, corporate customers, transactions and default recovery with data  in the past ten years, developed more than 30 non-retail credit risk rating models, and established a two-dimensional rating system based on the customer rating and debt rating. The asset coverage ratio of customer rating reached over 75% and the debt rating covered over 170 business types. As a result, the model measurement result has been extensively applied in customer management, rating and credit granting, collateral management, business approval, limit control, drawdown management, quality classification, risk pre-warning and statistics and analysis.

An industry insider pointed out that the The Capital Rules for Commercial Banks (Provisional) issued by CBRC encouraged qualified banks to adopt advanced measurement approaches and develop risk measurement tools to refine the measurement, enhance the risk sensitivity and consolidate the measurement of risk management. By implementing advanced capital management approaches, ICBC can improve its risk management, sharpen its competitiveness, speed up the transformation of operation mode, apply the capital constraint in all business lines and management process and enhance the intensive use of resources.