risk for small business banks: case study on...
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CONFIDENTIAL– DONOTDISTRIBUTE©CapitalPlusExchange2016
Foreign Exchange Risk for Small Business Banks: Case Study on XacBankJulieAbramsAmarHanibal
21April,2016
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Upcoming Webinars
18May SMEFinanceForum&CapPlusWebinar:FinancingWomen‐OwnedEnterprises
20July SMEFinanceForum&CapPlusWebinar:BitcoinandBlock‐Chain/DecentralizedLedgerTechnology
Viewlocaltimesandregisterat:www.capplus.org/events
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Webinar objectives• Foreignexchangerisk:
o Definitiono Howmeasuredo Whyimportant
• XacBank:o Overviewo FXriskmanagementchallengesandinnovationso Lessonslearned
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SME FX risk definition
Foreignexchangerisk:Thepossibilityoffinanciallosstothebankarisingfromadversemovementsinforeignexchangerates
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Measure FX risk through net open position
Netopenposition:• Percurrency• Institutioncansetpositionlimits
• Regulatormaysetprudentiallimits
(intrillionsoftogrog) MNT USDASSETS (A)Loanstocustomers 382Otherassets 148
1 TotalAssets 530
LIABILITIES(L)Borrowedfunds 377Otherliabilities 159
2 Totalliabilities 535
1‐2 Netopenposition=A‐L ‐6
3 Totalequity 122
(1‐2)/3 Netopenpositionas%ofequity -5%
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Origin of XacBank’s FX risk
Localcurrency:togrog(MNT)
• International lendersissueloans:oMostinUSD,notMNTo3‐yearaveragetenoroCreatesUSDB/Sliabilities
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Which was worse: FX losses or higher credit costs?
• Dataanalyzedfrom2008‐09for2013‐14oFXlossesoNPLoProvisioning
“Forecastsandmodelssupportedourgutfeeling.”
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Xac had sense of urgency re: rising FX risk
“Wecouldn’tsitidlyonourhandswaitingforthingstogetworse.”
• Roleof:oExecutiveBankCommitteeoAsset‐LiabilityCommittee(ALCO)oBoard
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Lessons learned1) Conundrum:
o Raisinghardcurrencyfromabroado Lendinginlocalcurrency
2) Analyze USDlendingimpacton:o Customerso Bottomline
3) Innovate toaddressFXrisk4) Nosilverbullet
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Key takeaways
• Qualityofearningsmattersmost• Changed5‐yearstrategy:
o Was:BelargestbankinMongoliao Now:BemostprofitablebankinMongolia
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“ThepastyearhasbeenachallengingyearforsomanycompaniesinMongoliagiventhedepreciatingcurrency…
Weareworkingtogetherwithourclientstoovercomethesechallengesandwebelievethiscollaborationwouldstrengthenourrelationshipwithclients.”
Parting words
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Questions&Answers
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