STRATEGIES FOR MITIGATING RISK AND REDUCING CAPITAL REQUIREMENTS

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STRATEGIES FOR MITIGATING RISK AND REDUCING
CAPITALREQUIREMENTS

• M. Rafiq Bengali
• SEVP RCE
• National Bank of Pakistan
• New York
• October 26th 2007

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NBP TRADE PRODUCT

• For the last ten years, NBP, NY has been
  facilitating Exports from the USA to Pakistan
  Other countries through
• COLLATERALIZED RISK PARTICIPATION
  PROGRAM
• Covered risks are
• Country risk (Cross Border)
• Non-payment under LC i.e. Credit risk of the LC
  issuing Bank(s)

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EXPORT INSURANCE COVERAGES

• Private/EXIM Bank
• Restrictive
• Fine print
• Not covered 100
• Higher pricing
• NBP Collateralized risk participation
• Flexible
• Clearly spelled out Agreement
• 0 to 100 coverage provided
• Market based pricing (based on of coverage)

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How does the Program work?

• NBP, NY signs a standard Master risk
  participation (MRP) Agreement with a Partner Bank
• The Corporate beneficiary receives an LC from one
  of the Banks approaches the House Bank for
  confirmation
• Due to cross border Limit constraints, the
  Partner Bank is not in a position to confirm or
  discount the LC for its customer (Beneficiary)
• NBP, NY can place from 0 to 100 cash as
  collateral to secure the confirmation of LC by
  the Partner Bank
• This program allows the Partner Bank to retain
  its Corporate customer by
• a) confirming the LC under the full risk
  responsibility of NBP, New York
• b) The Confirming Bank is covered through the
  collateralized risk participation program

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PAKISTAN RISK COVERAGE/PRICING (For second tier
Pakistani Banks)
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Which countries do we cover?

• Currently, we have the risk appetite and credit
  Limits for Banks operating in
• 1) Pakistan
• 2) Bangladesh
• 3) Kazakhstan and
• 4) Most Middle Eastern countries
• Exceptions (US sanctioned countries)

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Obligations of the Partner Bank (the Confirming
Bank)

• The Confirming Bank in its capacity as a
  Negotiating Bank will assume the operational
  risk associated with the negotiation of
  documents
• LIABILITY OF NBP, NEW YORK
• NBP, NYs collateral held with the Confirming
  Bank is available for set-off in the event of
  non-payment/default by the LC issuing Bank(s)
• This arrangement is legally enforceable through a
  pledge agreement signed by NBP, NY

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Pricing?

• Pricing depends on the
• Financial strength of the LC issuing Bank
• Size of the transaction
• Tenor of the LC and
• Prevailing geo-political situation
• Current pricing ranges between 0.80 p.a. to 2
  p.a.