Contingent Liabilities Risk Management : A Credit Risk Analysis Framework for Sovereign Guarantees and On-Lending—Country Experiences from Colombia, Indonesia, Sweden, and Turkey
Sovereign credit guarantees and government on-lending can catalyze private sector investment and fulfill specific policy objectives. However, contingent liabilities stemming from guarantees and contingent assets stemming from on-lending expose gove...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/01/25818107/contingent-liabilities-risk-management-credit-risk-analysis-framework-sovereign-guarantees-on-lendingcountry-experiences-colombia-indonesia-sweden-turkey http://hdl.handle.net/10986/23713 |
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okr-10986-237132021-04-23T14:04:16Z Contingent Liabilities Risk Management : A Credit Risk Analysis Framework for Sovereign Guarantees and On-Lending—Country Experiences from Colombia, Indonesia, Sweden, and Turkey Bachmair, Fritz Florian FINANCIAL CAPABILITY FINANCIAL CONSUMER PROTECTION FINANCIAL INCLUSION FINANCIAL SERVICE PROVIDERS FINANCIAL STABILITY HOUSEHOLD WELFARE SURVEYS Sovereign credit guarantees and government on-lending can catalyze private sector investment and fulfill specific policy objectives. However, contingent liabilities stemming from guarantees and contingent assets stemming from on-lending expose governments to risk. Prudent risk management, including risk analysis and measurement, can help identify and mitigate these risks. This paper proposes a four-step structure for analyzing and measuring credit risk: (i) defining key characteristics to determine the choice of a risk analysis approach; (ii) analyzing risk drivers; (iii) quantifying risks; and (iv) applying risk analyses and quantification to the design of risk management tools. This structure is based on an assessment of approaches discussed in academia and applied in practice. The paper demonstrates how the four steps of credit risk management are applied in Colombia, Sweden, and Turkey. It also discusses how the proposed framework is applied in Indonesia as it develops a credit risk management framework for sovereign guarantees. Country experiences show that although sovereign risk managers can draw on insights from credit risk management in the private sector, academic literature, and practices in other countries, approaches to risk management need to be highly context-specific. Key differentiating factors include characteristics of the guarantee and on-lending portfolio, the sovereign’s specific risk exposure, the availability of market information and data, and resources and capacity in the public sector. Developing a sound risk analysis and measurement framework requires significant investments in resources, capacity building, and time. Governments should view this process as iterative and long-term. 2016-02-02T22:36:54Z 2016-02-02T22:36:54Z 2016-01 Working Paper http://documents.worldbank.org/curated/en/2016/01/25818107/contingent-liabilities-risk-management-credit-risk-analysis-framework-sovereign-guarantees-on-lendingcountry-experiences-colombia-indonesia-sweden-turkey http://hdl.handle.net/10986/23713 English en_US Policy Research Working Paper;No. 7538 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Colombia Indonesia Sweden Turkey |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
FINANCIAL CAPABILITY FINANCIAL CONSUMER PROTECTION FINANCIAL INCLUSION FINANCIAL SERVICE PROVIDERS FINANCIAL STABILITY HOUSEHOLD WELFARE SURVEYS |
| spellingShingle |
FINANCIAL CAPABILITY FINANCIAL CONSUMER PROTECTION FINANCIAL INCLUSION FINANCIAL SERVICE PROVIDERS FINANCIAL STABILITY HOUSEHOLD WELFARE SURVEYS Bachmair, Fritz Florian Contingent Liabilities Risk Management : A Credit Risk Analysis Framework for Sovereign Guarantees and On-Lending—Country Experiences from Colombia, Indonesia, Sweden, and Turkey |
| geographic_facet |
Colombia Indonesia Sweden Turkey |
| relation |
Policy Research Working Paper;No. 7538 |
| description |
Sovereign credit guarantees and
government on-lending can catalyze private sector investment
and fulfill specific policy objectives. However, contingent
liabilities stemming from guarantees and contingent assets
stemming from on-lending expose governments to risk. Prudent
risk management, including risk analysis and measurement,
can help identify and mitigate these risks. This paper
proposes a four-step structure for analyzing and measuring
credit risk: (i) defining key characteristics to determine
the choice of a risk analysis approach; (ii) analyzing risk
drivers; (iii) quantifying risks; and (iv) applying risk
analyses and quantification to the design of risk management
tools. This structure is based on an assessment of
approaches discussed in academia and applied in practice.
The paper demonstrates how the four steps of credit risk
management are applied in Colombia, Sweden, and Turkey. It
also discusses how the proposed framework is applied in
Indonesia as it develops a credit risk management framework
for sovereign guarantees. Country experiences show that
although sovereign risk managers can draw on insights from
credit risk management in the private sector, academic
literature, and practices in other countries, approaches to
risk management need to be highly context-specific. Key
differentiating factors include characteristics of the
guarantee and on-lending portfolio, the sovereign’s specific
risk exposure, the availability of market information and
data, and resources and capacity in the public sector.
Developing a sound risk analysis and measurement framework
requires significant investments in resources, capacity
building, and time. Governments should view this process as
iterative and long-term. |
| format |
Working Paper |
| author |
Bachmair, Fritz Florian |
| author_facet |
Bachmair, Fritz Florian |
| author_sort |
Bachmair, Fritz Florian |
| title |
Contingent Liabilities Risk Management : A Credit Risk Analysis Framework for Sovereign Guarantees and On-Lending—Country Experiences from Colombia, Indonesia, Sweden, and Turkey |
| title_short |
Contingent Liabilities Risk Management : A Credit Risk Analysis Framework for Sovereign Guarantees and On-Lending—Country Experiences from Colombia, Indonesia, Sweden, and Turkey |
| title_full |
Contingent Liabilities Risk Management : A Credit Risk Analysis Framework for Sovereign Guarantees and On-Lending—Country Experiences from Colombia, Indonesia, Sweden, and Turkey |
| title_fullStr |
Contingent Liabilities Risk Management : A Credit Risk Analysis Framework for Sovereign Guarantees and On-Lending—Country Experiences from Colombia, Indonesia, Sweden, and Turkey |
| title_full_unstemmed |
Contingent Liabilities Risk Management : A Credit Risk Analysis Framework for Sovereign Guarantees and On-Lending—Country Experiences from Colombia, Indonesia, Sweden, and Turkey |
| title_sort |
contingent liabilities risk management : a credit risk analysis framework for sovereign guarantees and on-lending—country experiences from colombia, indonesia, sweden, and turkey |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/01/25818107/contingent-liabilities-risk-management-credit-risk-analysis-framework-sovereign-guarantees-on-lendingcountry-experiences-colombia-indonesia-sweden-turkey http://hdl.handle.net/10986/23713 |
| _version_ |
1764454608942399488 |