Country Risk Policy

IV.I Scope and frequency of reporting.
All banks conducting international banking business are required to file a country risk exposure and provision schedule together with its Chart of Accounts as per December 31 of each year. The Chart of Accounts as per mentioned reporting date should reflect the required country risk provisions in line with the list containing minimum provision percentages circulated by the Bank once a year.

IV.2 Presentation. 

  1. The reporting of country risk exposures includes all foreign exposures of foreign branches and subsidiaries of a bank in consolidated form. Country risk exposures of consolidated subsidiaries in which the ownership is less than 100% shall be reported in their aggregate amount or on a pro rata parte basis.
  2. A bank shall also report its Net Financial Interest in foreign branches and participations as a country risk exposure. The Net Financial Interest will include the assigned capital of a foreign branch and or the equity value of a foreign participation including the net balance receivable from a foreign branch or participation as per the reporting date.
  3. The calculation and presentation of the country risk exposure reflects the establishment of a gross exposure, followed by allowed deductions and compensations. This will lead to the calculation of a net exposure on which the applicable provision percentage, if any, will be applied.

IV.3 Sectorial reporting.
The country risk reporting system differentiates between exposures related to banks, Governments and the private sector (excl. banks). Banks include multilateral development banks and Government includes international and supra-national institutions.

IV.4 Allowed Deductions. 

  1. In general, deductions can only be considered if the credit institution has to the satisfaction of the Bank provided evidence that the payment history of the debtor-country is adequate or that otherwise a country risk does not exist.
    In these cases, the relevant foreign assets will be deducted from the total country risk exposure amount which is the basis for provisioning.
  2. There are three categories of deductions: 
    1. Guarantees and other securities.
      These regard:
      1. i) assets covered by credit insurance;
      2. ii) back to back positions and
      3. iii) net positions covered by guarantees and other securities, if both political and transfer risks are adequately covered (e.g. when guarantor is established outside the debtor-country or the security is located outside the debtor-country)
    2. Trade financing.
      As long as the payment history of a debtor-country is normal, a bank's net position due from trade financing with a maturity of one year or less shall be excluded from the country risk provision calculations by means of an allowed deduction. The Bank may allow deductions for trade-financing with a period of 3 years or less to take place provided stable conditions existed in the debtor-country for the past ten years.
    3. Other deductions and compensation.
      Participations in financing provided to debtor-nations primarily by multi-lateral development banks may also be excluded from the country risk provision calculation. Also, already existing provisions from prior years shall be excluded from subject calculation. 

IV.5 Provisions for country risk. 

  1. The Bank may, based on the country risk review system, deem it necessary to require specific country risk provisions for outstandings of banks in certain debtor-countries. These provisions will be put on the list to be circulated.
  2. No later than December 15 of each year, the Bank will circulate among the banks the list containing the required minimum country risk provision percentages, which should be used for the calculation of the country risk provision in the Chart of Accounts. The country risk provision is a specific provision and should be reported as such in the Chart of Accounts. The loan should then be reported net of the amount of the country risk provision on the balance sheet.
  3. The required provisions are by their nature minimum provisions and credit institutions are therefore advised that the country risk policy of the Bank does not eliminate the own responsibility of the management of an institution to evaluate its risks on an ongoing basis and to take the necessary measures, including additional provisions, to accommodate the risks.
  4. Upon their request, the Bank will discuss the current provision percentages with the representative organizations of banks, before it sends the list to the individual banks.
  5. For banks conducting their activities mainly in one specific "Country Risk" jurisdiction, a special rule will be applicable with regard to the minimum provisions. To that effect a special circular will be issued by the Bank based on this Supervisory Regulation. 

IV.6 Country risk provision reporting.

  1.  The Country Risk Exposure and Provision Schedule ("CREPS") shall be submitted to the Bank by banks with international activities once a year along with the December 31, Chart of Accounts.
  2. The last page of the CREPS provides a summary of the gross country risk exposures of identified countries, the allowed deductions, the net country risk exposure and the required country risk provision per country and in the aggregate.
  3. The net country risk provision as per the reporting date should be reconciled with the general provisions of the Chart of Accounts and the difference between the provision as per reporting date with the prior period provision should reflect a charge (debit) or a release (credit) in the Profit & Loss account.