Policy Rule on the Treatment of Concentration Risk in Emerging Countries

Policy rule

Read aloud

The policy rule addresses the second pillar concentration risk in more detail. Banks that have significant exposure concentrations in countries with a non-negligible risk of repayment and transformation problems as well as heightened collective default risk should adequately control these risks. The policy rule states which risk controls DNB recommends that financial institutions implement and, if they prove to be inadequate, which capital surcharges they must take into account. The institutions report this in the ICAAP, which we will assess by means of the SREP.

Published: 24 February 2014

We apply the policy rule to concentrations (>5 % of the balance sheet total and total off-balance-sheet items) in countries with a high probability of a country risk event as defined in the policy rule. We also use a table containing weighting factors and absolute limits to counter incentives to diversify to worse risks. If, at any point in the past three years, an institution's country exposure has exceeded the 5% threshold, the policy must be applied.

Estimating country risk

A financial institution is initially responsible for assessing the country risk itself. The first indicator that can be used is the sovereign foreign currency rating (long term). Other factors can also be considered in the estimate, e.g. views expressed by the IMF and OECD and an assessment of the sustainability of the country's economic growth and its balance of payments, and the stability of its financial sector. In certain cases we will also prepare a risk assessment for the countries we deem relevant in view of the characteristics of the institution concerned and inform the institution accordingly.

Risk controls

The policy rule assumes a country risk event for the largest exposure concentration in the portfolio, with regional contagion being reflected in a three-notch downgrade. Risk controls are taken into account in a weighting we have set. In particular, we are of the view that collateral, credit risk insurance, trade finance and short-maturity assets reduce a financial institution’s risk profile. If we consider the controls inadequate to mitigate the risks involved, additional capital must be held.

Base law

Art. 23 BPRWFT
(Refers to an external site)

Art. 24a BRWFT
(Refers to an external site)

Art. 25A BPRWFT
(Refers to an external site)

Art. 3:17 Wft
(Refers to an external site)

Related websites

Autoriteit Financiële Markten
(Refers to an external site)

Ministerie van Financiën
(Refers to an external site)

Discover related articles

Policy rule

Banks

Investment firms

Share:

Share on LinkedIn

Share on X

Share on Facebook

Share via Email

Interesting articles

Prudential rules do not hinder bank financing for EU priorities

17 July 2026

News item supervision

Europe faces historic investment challenges, in which banks will play an important financing role. Prudential requirements strengthen banks’ resilience, without posing a major obstacle to their financing. Unlocking more private finance requires better risk-sharing and deeper financial integration.

Read more
Prudential rules do not hinder bank financing for EU priorities

News item supervision

17 July 2026

DNB Inhouse Day for the Dutch banking sector: financial crime supervision

16 July 2026

News item supervision

Following last year’s successful event, De Nederlandsche Bank (DNB) will again host an Inhouse Day for AML/CFT professionals in the Dutch banking sector. The event is designed to encourage dialogue and provide further insight into DNB’s AML/CFT supervision.

Read more
DNB Inhouse Day for the Dutch banking sector: financial crime supervision

News item supervision

16 July 2026

Fine for ABN AMRO Bank N.V. for inadequate customer due diligence for high-risk customers

09 July 2026

Enforcement measures

De Nederlandsche Bank (DNB) imposed an administrative fine of €8.5 million on ABN AMRO Bank N.V. (ABN AMRO) on 6 July 2026 due to serious shortcomings in its anti-money laundering controls in the period from September 2023 through September 2024.

Read more
Fine for ABN AMRO Bank N.V. for inadequate customer due diligence for high-risk customers

Enforcement measures

09 July 2026

De Nederlandsche Bank publishes ‘Integrity Supervision in Focus 2026’

25 June 2026

News item supervision

In the third edition of ‘Integrity Supervision in Focus’ (ISF), we share the key insights from our integrity supervision.

Read more
De Nederlandsche Bank publishes ‘Integrity Supervision in Focus 2026’

News item supervision

25 June 2026