Country Risk Management

Appendix D: Institution-Specific Factors

Finally, an institution’s analysis of country risk should take into consideration factors relating to the nature of its actual (or approved) exposures in the country including, for example:

• The institution’s business strategy and its exposure management plans for the country.

• The mix of exposures and commitments, including the types of investments and borrowers, the distribution of maturities, the types and quality of collateral, the existence of guarantees, whether exposures are held for trading or investment, and any other distinguishing characteristics of the portfolio.

• The economic outlook for any specifically targeted industries within the country.

• The degree to which political or economic developments in a country are likely to affect the institution’s chosen lines of business in the country. For instance, the unemployment rate or changes in local bankruptcy laws may affect certain activities more than others.

• For an institution involved in capital markets, its susceptibility to changes in value based on market movements. As the market value of claims against a foreign counterparty rise, the counterparty may become less financially sound, thus increasing the risk of nonpayment. This is especially true with regard to over-the-counter derivative instruments.

• The degree to which political or economic developments are likely to affect the credit risk of individual counterparties in the country. For example, foreign counterparties with healthy export markets or whose business is tied closely to supplying manufacturing entities in developed countries may have significantly less exposure to the local country’s economic disruptions than do other counterparties in the country.

• The institution’s ability to effectively manage its exposures in a country through in-country or regional representation, or by some other arrangement that ensures the timely reporting of, and response to, any problems.

Previous: Appendix C: Social, Political, and Legal Climate Next: References