Bank Supervision

Guidelines & Regulations

Country Risk Management Guidelines

Published Tuesday April 11th, 2006

The aim of this Guideline is to assist licensees in establishing internal structures, policies, and procedures for the sound management of country risk.

Country risk is the risk that economic, social, and political conditions and events in a foreign country will adversely affect a licensee's financial condition. In addition to the negative effect that deteriorating economic conditions and political and social unrest may have on the rate of default by obligors in a country, country risk also includes the possibility of nationalization or expropriation of assets, government repudiation of external indebtedness, sudden changes in exchange control policies, and currency depreciation or devaluation.

Because the Central Bank supervises institutions that are based in over thirty countries, many of our licensees engage in international lending and incur cross border exposures that leave them open to country risk. The Central Bank is of the view that sound country risk management should be a part of the risk management framework of any licensee that engages in international activities.

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