MEFMI continues to implement Internal Credit Risk Analysis Tool at RBM

In the Phase IV Mid-Term Review (MTR), member countries highlighted a need to strengthen risk management in reserves mainly due to several developments:

i. The push for central banks to reduce the heavy reliance placed on credit rating agencies and better assess credit risk in their portfolios;
ii. Growing central bank reserves requiring better management and oversight;
iii. Low to negative interest rates in the investment universe which put pressure on reserves managers to explore ways of maintaining stronger returns. This would be expected to include a review of asset classes, currencies and markets.

To address the gap and enhance risk management oversight in reserves management, MEFMI commenced a study in 2015 to develop a tool for Central Banks to support the analysis of credit risk. In this development process the tool was further subjected to reviews and was launched in 2017 at the Retreat for Heads of Reserves Management and Investment Committee members. Subsequent to that, the ICRAT dataset was linked to Bloomberg output and then implementation commenced.

The tool has been implemented at Bank of Namibia (BON) and National Bank of Rwanda during 2018. During 2019 the first implementation was at Central Bank of Lesotho (CBL) in March 2019 and now Reserve Bank of Malawi (RBM) from 1-5 July 2019.