Country Risk Management

Elements of an Effective Country Risk Management Process

To effectively control the level of risk associated with their international activities, banks must have a risk management process that focuses on the broadly defined concept of country risk. A sound country risk management process includes:

• Effective oversight by the board of directors,

• Adequate risk management policies and procedures,

• An accurate system for reporting country exposures,

• An effective process for analyzing country risk,

• A country risk rating system,

• Established country exposure limits,

• Regular monitoring of country conditions,

• Periodic stress testing of foreign exposures, and

• Adequate internal controls and audit function.

Although the details and complexity of the country risk management process will vary from one bank to the next, such management must be commensurate with the volume and complexity of the bank’s international activities. Supervisory expectations will also take into consideration the bank’s size and technological capabilities.

Previous: Risks Associated with International Activities Next: Oversight by the Board of Directors