As key decision-makers in an African bank (CEO, Risk Director, Credit Director, or Commitments Director), you constantly face the challenge of balancing growth with regulatory compliance.
In today’s context, where audits and regulations are becoming increasingly stringent, securing your large risks has become a priority. It is an essential step in ensuring your institution’s stability and supporting economic development.
What are the Challenges of Covering Large Risks?
As you know, this time of the year is crucial for financial institutions, marked by strategic deadlines and major responsibilities. It requires, on one hand, the validation of established financial objectives and, on the other, the finalization of financial statements in preparation for audits by statutory auditors.
Moreover, it involves preparing and submitting prudential reports to ensure regulatory compliance. It is also a key moment to convene Governance bodies and validate fundamental strategic decisions that will shape future growth.
In this context, ensuring strict compliance with prudential ratio limits while optimizing financing for key counterparties is essential. This delicate balance is crucial to fostering economic growth while strengthening the financial stability and resilience of your bank.
The Benefits of Risk Sharing Guarantees .Risk-sharing guarantees offer multiple advantages, including:
- Reducing concentration risk by limiting the potential impact of a major counterparty default on the bank’s financial position.
- Improving portfolio quality by encouraging more rigorous risk management and better asset diversification.
- Strengthening investor and regulatory confidence by demonstrating prudent and responsible risk management.
- Optimizing the use of capital by freeing up funds to finance new projects and support economic growth.
The Solution: ETC’s Concentration Risk Bond (CRB)
ETC is a European guarantee institution working with banks and financial institutions operating in Africa. ETC provides technical and financial services to support investment and international trade projects.
To address these challenges, ETC offers a tailored solution: the Concentration Risk Bond (CRB).
ETC holds a public rating of A3- (Risk Category 2 under the EU framework) from the European Securities and Markets Authority (ESMA) and AA long-term and A1 short-term ratings from Bloomfield Investment Corporation, applicable in the AMF-UMOA zone. As an active SWIFT member under the code ETCGIT2T, ETC provides guarantee instruments such as Standby Letters of Credit (SBLCs) in compliance with International Chamber of Commerce (ICC) rules.
How Does the Concentration Risk Bond (CRB) Work?
The CRB is a risk-sharing guarantee that enables banks to manage concentration risk. By complying with Basel III standards, this instrument limits exposure to 25% of regulatory capital, thereby facilitating loans to major counterparties without compromising prudential compliance.
Key Benefits of the CRB:
- Risk Mitigation: Reduction of Exposure at Default (EAD) in case of default
- Asset Weighting: Use of ETC’s public rating (A3-) to adjust risk weighting, freeing up capital.
- Optimized Financing: Enables the funding of more projects while maintaining risk concentration limits.
Who Can Benefit from the CRB?
- Financial and development institutions looking to support regional project promoters and large-scale initiatives.
- Banks aiming to boost financing for both public and private entities while contributing to the local economy.
- Financial institutions seeking to improve their solvency ratios and optimize capital utilization to enhance financial inclusion.
ETC offers a flexible and customized solution, tailored to the specificities of the African market and regulatory requirements. With the CRB, you can support economic growth while ensuring the financial strength of your institution.
