THE INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS – ICAAP (regulation, assessment of risk profile and specific risk positions)

The internal capital adequacyassessment process - ICAAP, describes whether thebank's risk profile and capital are consistent withthe requirements of regulators and the bankinternal estimates. ICAAP unifies business strategyand risk management strategy by ensuring that thebank can at any time identify inherent risks, whilecomparing them with the internally set limits andlevels of capital for its coverage, all in order tomaintain profitability and solvency of the bank. Therole of supervisors in the ICAAP process is toevaluate the capital adequacy and the quality of therisk management in banks starting from the specificrisk profile of the bank and the principle ofproportionality and to draw conclusions about theadequacy of the bank’s capital after review of itsbusiness. Implementation and use of the ICAAP is acomplex process and executive officers in banks,especially the top management, should be in chargeof its implementation. ICAAP implementation inBosnia and Herzegovina (BiH) will be based onstandard models of Basel 2 and the basic models ofestimates of capital needed to cover other riskareas, while the largest amounts of allocatedcapital will be related to coverage of the credit riskand the concentration risk.