International Credit – Where is it Headed?

Taking Risk is an Essential Part of an International Credit Risk Manager's job. In an increasingly complex and insecure global environment it is essential to understand the overall business environment.

Today's international credit risk manager should be able to identify, assess, manage and protect their portfolio against an array of risks. Credit, settlement and market risk are only a subset of the geopolitical risks that can adversely impact a client's ability to fulfill their contracted obligation.

Potential geopolitical risks that should be analyzed include political stability, regional security, government regulations and legal policy, and overall economic conditions.

Business Environment risk can be broadly segmented into four categories:

Political and Social Risk - Internal and external security, policy competency/consistency that impact business.

Economic and Financial Risk - Inflation, fiscal policy, monetary policy, and macro policy that impact economic growth.

Commercial Risk - Judicial competence, sanctity of contracts, regulatory transparency, systemic corruption that impact commercial trade.

Country Risk - Country's external accounts, capital flows, foreign exchange reserves, size of external debt, debt service capacity that impacts its ability to meet payment obligations.

The successful credit manager will need to construct a grid or matrix to filter, assess and measure risk, and purchase insurance policies or structure credits to mitigate these risks. This is the surest way to both maximize the value and protect the receivables investment.

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