Bank Islam Integrated Annual Report 2020

43. CAPITAL ADEQUACY Total capital and capital adequacy ratios of the Bank have been computed based on Bank Negara Malaysia (“BNM”)’s Capital Adequacy Framework for Islamic Banks (Capital Components) issued on 9 December 2020 and Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) issued on 3 May 2019. The Bank is required to meet minimum Common Equity Tier I (“CET I”), Tier I and Total Capital adequacy ratios of 4.5%, 6.0% and 8.0% respectively in 2020. To ensure that banks build up adequate capital buffer outside period of stress, a Capital Conservation Buffer (“CCB”) of 2.5% above the minimum capital adequacy was introduced by BNM. The CCB is maintained in the form of CET I capital at 2.5% starting 1 January 2019 onwards. Therefore, the minimum regulatory capital adequacy ratios requirement for CET I capital ratio, Tier I capital ratio and Total Capital ratio are 7.0%, 8.5% and 10.5% respectively starting year 2019 onwards. The Bank has adopted the Standardised Approach for Credit Risk and Market Risk and the Basic Indicator Approach for Operational Risk. Similar to Note 2.1(a)(iv), BNM has issued a memo on “Additional Measures to Assists Customers Affected by COVID-19 Outbreak” which specifies (amongst others): i. Drawdown of CCB of 2.5%; and ii. Reduction in regulatory reserves held against expected losses to 0%. As a result, the minimum CET I capital ratio, Tier I capital ratio and Total Capital Ratio for the year ended 2020 are revised to 4.5%, 6.0% and 8.0% respectively (i.e. without CCB). However BNM requires financial institutions to restore the minimum regulatory requirements by 30 September 2021. The capital adequacy ratios of the Group and the Bank are set out below: Group Bank 2020 2019 2020 2019 Common Equity Tier I (“CET I”) Capital Ratio 14.667% 14.215% 14.642% 14.185% Total Capital Ratio 19.822% 18.661% 19.804% 18.637% Notes to the financial statements for the financial year ended 31 December 2020 306 Financ ial Statement s Accountabi l i t y Addi t ional Informat ion