Analyzes standards and regulations to identify, monitor, manage and mitigate credit and counterparty risks, and seeks to make their measurement and control consistent across the system.
Objective and functions
Analyze standards, current and pending regulations, guides, recommendations and manuals from internationally recognized organizations that serve as a reference to identify, monitor, manage and mitigate credit and counterparty risks, and help make their measurement and control consistent across the system.
- 01Propose new regulations or changes to existing ones to strengthen and energize the management of these risks across the different types of institutions.
- 02Generate periodic analysis and sector studies on the behavior of credit and investments at the global level.
- 03Promote, based on documented analysis, statistical models for measuring and controlling credit and counterparty risks.
- 04Propose new credit indicators that strengthen institutions’ measurement and risk appetite.
- 05Follow and give an opinion on the risk ratings of the main local and international financial institutions.
- 06Prepare a country risk document with the main rating agencies.
- 07Analyze the classification and segmentation of customers to identify them better.
- 08Hold discussions with figures from the public and private sectors.
What credit and counterparty risk is
Credit risk
The possibility of suffering an economic loss because a borrower or counterparty fails to meet its obligations on the agreed terms. It shows up in late payments, restructurings, moratoriums or bankruptcies, and is concentrated in the loan portfolio and in investments held to maturity.
SourceBasel Committee (BCBS), Principles for the Management of Credit Risk, 2000 (opens in a new tab)
Counterparty risk
The risk that the counterparty or issuer of a financial instrument or over-the-counter contract defaults before maturity. It differs from traditional credit because the exposure changes with market prices, which makes it harder to measure, and because a counterparty’s default can spread to others.
SourceBasel Committee (BCBS), Principles for the Management of Credit Risk, 2000 (opens in a new tab)
How it is measured and quantified
What is expected to be lost, which is covered by provisions, is separated from what could be lost above expectations, which is covered by capital.
Expected loss
EL = PD × LGD × EADIt combines the probability of default (PD), the loss given default as a percentage of exposure (LGD) and the exposure at default (EAD). Provisions must cover, at a minimum, the expected loss.
Unexpected loss and capital
This is the loss that exceeds the expected one. It is estimated with the portfolio loss distribution, at a high confidence level (the Basel internal models approach uses 99.9%), and is backed by capital.
Provision coverage
Provisions ÷ past-due portfolioIndicates how much of the defaulted portfolio is backed by reserves. It can also be measured against total exposure subject to risk, as a risk appetite metric.
Portfolio quality
Past-due portfolio ÷ total portfolioDelinquency ratio, together with migrations between risk categories and recovery rates.
Concentration
Exposure by debtor, sector, geographic area, product and currency against the limits of the risk appetite. Diversification reduces the variability of losses around the mean.
Derivatives counterparty
Measured with the current exposure and the potential future exposure of each contract, and with the credit valuation adjustment (CVA). Basel offers a standardized method for exposure and a specific framework for CVA.
Stress tests
They simulate how adverse economic scenarios change PD, LGD and exposures, and how much capital and provisions would be needed.
How it is managed
Coordination
Those who lead the committee. The coordination and co-coordination roles rotate once a year.
Coordination
To be appointed
This position is assigned by annual rotation.
Co-coordination
Manuel González
ABA
Regulations and recommended readings
Standards and documents that the committee uses as the basis of its work.
- Law 183-02, Monetary and Financial Law
- Current regulations from the superintendencies and local bodies
- Basel Committee (BCBS), Principles for the Management of Credit Risk, 2000 (opens in a new tab)
- Basel Committee Banking Supervision Accords (Basel Framework) (opens in a new tab)
- ISO 31000:2018, Risk management: guidelines (opens in a new tab)
- Documents from international rating agencies
Sign up for this committee
Members who wish to take part notify the Club’s Executive Committee, and this form is the channel. Regular members and representatives of sponsor members may take part. Not a member yet? Find out how to become one.
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