BoM Revises Guideline on Credit Concentration Risk
BoM published the guideline on the regulatory credit concentration limits and the basic framework of credit concentration risk management to be put in place by financial institutions. BoM has amended Annex I of the guideline to require the exposure value of on-balance sheet items to be defined as the accounting value of the exposure, net of specific provisions and value adjustments. Alternatively, a financial institution may consider the exposure value gross of specific provisions and value adjustments. Details on the computation of Fund Based and Non-Fund Based exposures have been removed. The changes in the guideline shall be applicable with immediate effect.
The guideline applies to all banks and non-bank deposit-taking institutions licensed under the Banking Act 2004. The guideline stipulates that a financial institution shall report to BoM on a quarterly basis, in the required form and manner, all information related to its large credit exposures, including exemptions permitted under this guideline. A financial institution shall develop credit policy, which shall comprise the credit concentration risk policy. This should include the principles and objectives governing the extent to which they are willing to accept credit concentration risk. The policy shall set out prudent rules and internal limits for granting credit to a single customer and its related parties, which shall not exceed the stipulated regulatory limits. A financial institution shall at least once a year conduct stress tests of its major credit risk concentrations and review the results of those tests to identify and respond to potential changes in market conditions that could inversely impact the performance of the financial institution. The results of the stress test shall be made available to BoM for examination.
BoM will assess the adequacy of processes, procedures, and policies put in place by a financial institution to ensure that it does not face excessive concentration risk by way of over exposure to a customer, sector, interlinked industries, and financial institutions, among others. When the risks arising from credit risk concentrations are not adequately addressed, BoM may take appropriate action, including prohibiting the institution from taking additional exposure and imposing a higher capital charge. Any financial institution, which is in non-compliance with the requirements of this guideline, shall within three months of the coming into effect of this guideline submit a plan showing the manner in which it will achieve compliance. This guideline has been intended to align the current BoM framework with the BCBS norms in the standard on “Supervisory Framework for measuring and controlling large exposures,” which was published in April 2014.
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Effective Date: August 22, 2019
Keywords: Middle East and Africa, Mauritius, Banking, Concentration Risk, Credit Risk, Large Exposures, Guideline, BoM
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