Credit Risk
Credit risk is defined as the risk of loss in portfolio value owing to the downgrade or default of an institution or security issuer.
NZDMO is exposed to credit loss when the issuer of a debt instrument defaults on interest or principal payments, or when a counterparty in a transaction such as a swap agreement defaults on an obligation. Credit-related loss in the value of the portfolio also occurs when the market value of a debt instrument falls owing to an increase in credit risk.
Financial instruments that subject NZDMO to credit risk include bank balances, advances, investments, interest rate swaps, currency swaps and foreign exchange forward contracts.
NZDMO manages credit risk through the credit screening of counterparties, use of credit exposure limits and counterparty collateral obligations. Credit exposures are maintained only with highly rated institutions for which the probability of default is low. To diversify credit exposure, NZDMO limits its exposure to any one institution. The creditworthiness of counterparties is continuously monitored. Credit risk is further controlled by incorporating credit support annexes into master swap agreements with swap and foreign exchange counterparties.
NZDMO lending to government entities, and to entities to which NZDMO is exposed as a matter of government policy, is not managed under the credit policy.
|
2008 |
Credit Risk Management |
2009 |
|---|---|---|
| 20,536 | Total NZDMO financial assets | 22,831 |
| Less: | ||
| 13,909 | Crown-related balances | 15,297 |
| 6,627 | Total Credit Exposure for Financial Assets | 7,534 |
