Contents -- I. INTRODUCTION -- II. THE NATURE OF EXCHANGE-RATE-INDUCED CREDIT RISK IN PARTIALLY DOLLARIZED ECONOMIES -- III. COUNTRY PRACTICES IN EXCHANGE-RATE-INDUCED CREDIT RISK MANAGEMENT AND SOME ALTERNATIVES -- IV. IMPACT OF PROVISIONING BASED ON BORROWING COST DIFFERENTIALS -- V. CONCLUSIONS -- References
Summary
Bank borrowers' currency mismatches often result from unhedged foreign currency borrowing in economies where there is significant dollarization, exposing the financial sector to disguised credit risk. In the absence of standard tools or guidelines to counteract this risk, countries have resorted to outright regulatory limits in cases of moderate dollarization and to undesirable exchange controls in other cases. This paper proposes a "specific-to-group" provision rule based on the effective borrowing cost differential between domestic and foreign currency. Such a rule would help internalize the corresponding risks for banks and their borrowers in line with internationally accepted prudential and accounting standards
Bibliography
Includes bibliographical references (pages 29-30)
Notes
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212 MiAaHDL
digitized 2010 HathiTrust Digital Library committed to preserve pda MiAaHDL
