CONCENTRATION OF RISK / LARGE EXPOSURES
The Bank of Mauritius Guidelines on Credit Concentration (revised December 2011) restrict the granting of credit facilities to non-financial institutions and other related parties, to:
- a maximum exposure to any single customer of 25%
- to related group of companies to 40% of the Bank’s capital base
- in aggregate, any individual exposure of 15% above the Bank’s capital base shall not exceed 600% of its capital base.
The Bank has always kept its large exposures within these limits. For instance, our concentration ratio of large exposures above 15% was 221% as at 30 June 2014, well within the regulatory limit of 600% as shown below:
|CAPITAL BASE AS AT 30 JUNE 2014||MUR’000|
|Total Large Exposures (15% above)||7,719,201|
|% Large exposure v/s Capital Base (Limitation 600%)||221%|
To manage industry risk, AfrAsia Bank also prepares economic and industry reports which are submitted to the Board Risk Committee, that highlight industry developments and risks to the Bank’s credit portfolio. These reports are used to define strategies for both our industry portfolio and individual counterparties within the portfolio.
The Bank conducts regional banking in accordance with our Africa-Asia strategic mandate. Hence, managing country risk is another key component of the Bank’s overall concentration risk management approach.
The assessment of country risk involves the determination of the nature of risks associated with individual country exposures and the evaluation of country conditions. In this way, the Bank makes a thorough evaluation of risks which may be associated with its cross-border operations and which have the potential to adversely affect its risk profile.
A ‘Country Watch’ process is also essential for the country risk assessment and is currently being set up. The analysts collect and filter the information relating to countries where the Bank has exposures. The country risk management process aims to not only look to macro conjectures but to integrate a regular watch of governance, regulations and to provide long term projections has exposures. The country risk management process aims to not only look to macro conjectures but to integrate a regular watch of governance, regulations and to provide long term projections.
LOANS & PLACEMENTS
Loans & Placements as of 30th June 2014
The Bank regularly compares its internal risk ratings with the ratings of the major international rating agencies. Country risk limits are reviewed regularly, in conjunction with the review of country risk ratings. Country risk limits are set by the Board Risk Committee.
CREDIT RISK MITIGATION
As a fundamental credit principle, the Bank does not generally grant credit facilities solely on the basis of the collateral provided. All credit facilities are also based on the credit rating, source of repayment and debt servicing ability of the borrower. Collateral is taken whenever possible to mitigate the credit risk. The collateral is monitored on a regular basis with the frequency of the valuation depending on the liquidity and volatility of the collateral value. Enforcement legal certainty of enforceability and effectiveness is another technique used to enforce the risk mitigation.
Where a claim on counterparty is secured against eligible collateral, the secured portion of the claim is weighted according to the risk weight of the collateral and the unsecured portion against the risk weight of the counterparty. To mitigate counterparty risk, the Bank also requires closeout netting agreements. This enables the Bank to net the positive and negative replacement values of contracts if the counterparty defaults. The Bank’s policy is to promote the use of closeout netting agreements and mutual collateral management agreements with an increasing number of products and counterparties in order to reduce counterparty risk.
As an indication, claims secured by cash which have been netted off against exposure is 2% of the asset book, whilst 2% of total asset book was for claims on banks.