TURKISH SH CASE Contin ingen ent t li liab abil ilit ities - PowerPoint PPT Presentation

T H E U N D E R S E C R E T A R I A T O F T R E A S U R Y TURKISH SH CASE Contin ingen ent t li liab abil ilit ities ies ris isk k man anagement: agement: Measu asuring ring an and man anagin aging ris isk relate lated d to sove vere reign ign guarantee arantees s an and on-lendi lending ng HARUN HA RUN AKKA KA Ş Head ad of Credi edit Risk sk Man anag agement t Depar partment Genera eral Dire rect ctora orate te of Public Finance ce Febru ruary 24, 2016 16 T.C. Başbakanlık Hazine Müsteşarlığı T.C. Başbakanlık Hazine Müsteşarlığı The Undersecretariat Of Treasury Slide 1

AGENDA Background Organizational Structure and Mandate Guaranteed and on-lent portfolio (size, entities) Risk analysis and quantification Credit Rating Model (flow of working process, PD) Model outcomes (internal credit rating, expected losses) Application in Risk Management Policy tools for risk mitigation Tools based on model outcomes Other tools Monitoring & Reporting Lessons learned The Undersecretariat Of Treasury Slide 2

Organizational Chart Credit Risk Management Department Staff 1 Head Of Department, 3 experts, 2 assistant experts The Undersecretariat Of Treasury Slide 3

Mandate Monitor, evaluate and adopt measures for credit risk arising from 1. Guarantees • Credit guarantees (to loan repayments) • Investment guarantees (to PPP projects) 2. Treasury Receivables • Receivables from on-lent loans • Receivables from undertakings of guarantees 3. Debt assumption commitments (to PPP projects) The Undersecretariat Of Treasury Slide 4

Treasury Credit Gurantees & On-Lent Debt Stock Credit Gurantee Debt Stock (2014) 16,000 Credit Guarantees On-Lent Total 13,674 14,000 12,000 11,156 10,000 (Million USD) On-Lent Debt Stock (2014)* 8,000 6,000 4,000 2,518 2,000 0 2009 2010 2011 2012 2013 2014 * Stock of projected receivables from external debt The Undersecretariat Of Treasury Slide 5

Risk Analysis (Credit Rating Model) The Undersecretariat Of Treasury Slide 6

Risk Quantification The Undersecretariat Of Treasury Slide 7

Risk Management Applications (Based on Expected Loss) • • Aim: Compensate the losses stem Aim: Share the risk with the creditor • from these credits at least partially Between 80% and 95% of the total • Between 0,1% and 1% of total debt • amount Inversely proportional to the expected • Directly proportional to the expected losses losses The Undersecretariat Of Treasury Slide 8

Risk Management Applications (Based on Expected Loss) • Limit on the amount of Treasury guarantees Guarantee & and on-lending On-Lending Limit • Annual Budget Law • Composed of guarantee fees, budget allocations, collections from receivables (guarantee assumptions) Risk Account • Used when beneficiary defaults • Precautionary account for unexpected cash needs The Undersecretariat Of Treasury Slide 9

Risk Management Applications (Other Tools) • No overdue liability to Treasury • Stay within the guarantee and on-lending limit Pre-Conditions • Sound financial capacity • Escrow account for Municipalities and their affiliates Foreign Debt • Canalizes incomes of Municipalities to the Payment Account escrow account • Guarantees timely payment of external debt The Undersecretariat Of Treasury Slide 10

Monitoring & Reporting  Public Debt Management Report (monthly/annual)  Guaranteed Stock/Receivables Stock  Undertaken Amounts  Debt Service Projections of guaranteed debt stock  Guarantees / On-lent Loans Provided  Risk Account Realizations  Fiscal Risk Bulletin (Quarterly) - internal  Performance of Risk Account (Quarterly) - internal 11/38 The Undersecretariat Of Treasury Slide 11

Statistics Treasury Guaranteed Debt Stock & Undertakings from these guarantees 12,000 800 11,000 700 Guaranteed External Debt (Million USD) 10,000 Undertakings arising from Treasury Guarantees 9,000 600 8,000 500 (Million US Dollar) 7,000 6,000 400 5,000 300 4,000 3,000 200 2,000 100 1,000 - - 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Guaranteed External Debt Undertaken Debt The Undersecretariat Of Treasury Slide 12

Statistics The Distribution of Treasury Guaranteed Credit and On-Lent Stock by Credit Rating(%) The Undersecretariat Of Treasury Slide 13

Lessons Learned Management of credit risks that arise from contingent liabilities gets even greater importance for maintaining fiscal discipline and efficient cash and debt management Building up legal framework is imperative Choose a risk analysis method and measure your credit risk Benefit from risk mitigation policy tools effectively Evaluate your model’s performance periodically Share the results with appropriate report formats Do not forget; it is a long-term process The Undersecretariat Of Treasury Slide 14

Th Than an k you… The Undersecretariat Of Treasury Slide 15

APP APPEN ENDIX DIX The Undersecretariat Of Treasury Slide 16

Risk Analysis (Calculation of PD) The Undersecretariat Of Treasury Slide 17

Risk Quantification (Calculation of Expected Loss) The Undersecretariat Of Treasury Slide 18