The Concentration Risk Bond (CRB) is a guarantee of individual or portfolio risk division which makes it possible to mitigate and weight the level of risk of a bank resulting from its concentration on counterparties, a sector or a country.
The CRB ensures, among other things, compliance with the risk division ratio on the major risks in the portfolio. Large exposures are the sum of the values of a bank’s exposures to a single counterparty or a group of interrelated counterparties that exceed 10% of equity. The risk division ratio limit is set at 25% of regulatory capital.
The instrument implemented for this is the stand-by letter of credit according to the rules of the International Chamber of Commerce (ICC).
In a context marked by the end of the transitional provisions relating to the risk division standard, now increasing the maximum concentration ratio for large exposures to 25% of Tier 1 capital (T1), the ETC guarantee is a great advantage.
Concentration Risk Bond, abbreviated as “CRB”: the Risk Division Guarantee (individual or portfolio) refers to the short-term facility offered by ETC to cover the commercial risk towards large risks in the portfolio, in order to allow the credit institution to comply with the risk division coefficient. It is defined as the maximum ratio of 25% between the corrected capital (Tier 1) and the Exposure to a Client (or a Group of Clients having the same reference shareholder), according to the Basel III prudential framework.
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Formula :APR = (AF/T) + (IF/T) + CF
Caption:
APR = Annual Percentage Rate
AF = Application Fees (Indicative rate 1% flat)
IF = Issuing Fees (Indicative rate 0.5% flat)
T = Tenor (year)
CF = Commitment Fee (Annual rate according to Financial Rating*)
* See table
