Country Exposure Limit Modelling: Country Risk Approach

As global competition is increasing, international banking plays an important role of the banking business. While maximizing profit, the financial institution is trying to minimize and mitigate the risk by formulating risk mitigation framework. This paper attempts to focus on Country Exposure Limit modelling by identifying important factors using country risk framework. This study was conducted at XYZ Bank one of the biggest bank in Indonesia which has a huge country exposure risk. The research tries to evaluate the model and suggest a new formula to calculate Country Exposure Limit. We examine the important macroeconomic factors used in predicting Country Exposure Limit across 47 countries. The finding of the empirical analysis indicates that GDP and Gross Capital Formation are positively significant in predicting Country Exposure Limit. This study result can also be used as a reference for financial institution in considering their model in predicting Country Exposure Limit