Credit risk lending limits

Ministry of Finance

Based on, among other things, the so-called credit rating, or creditworthiness of a party, a limit is calculated, indicating the maximum amount that can be lent to a counterparty (e.g. a bank).

Last change on 29th of October 2024, at 9:45 (CET) | Publication Standard 1.0

• Publication category: Other algorithms
• Impact assessment: Field not filled in.
• Status: In use

General information

Theme

Public finance

Begin date

2019

Contact information

[e-mail]

Responsible use

Goal and impact

When lending, there is a credit risk (i.e. the risk that the counterparty will not repay). To mitigate this risk, there is a limit to the amount that can be lent by the DSTA.

Considerations

The advantage is that there is a limit on the amount of money that can be lent per counterparty. This limits possible future losses. Because we are cautious about credit risk, counterparties with too low a credit risk are also excluded. The downside is that we can be too cautious. However, the algorithm only passes on a limit. It is up to the staff to possibly link actions (i.e. exposures) to this (decision-supporting).

Human intervention

Not all information can be captured in variables. That is why there is also a human consideration that tests, for example, whether a counterparty poses reputational risk to the Dutch state. The algorithm does not make an automated decision. It is always up to the employee to make a decision based on the information.

Risk management

The risks for the counterparty may be that it is unfairly lent less money due to an incorrect rating. This risk is low because credit ratings from multiple rating agencies are used.

The risks for the organisation can be financial (loss due to bankruptcy of counterparty), operational (unjustified lending due to miscalculation) or reputational (lending money to a controversial counterparty).

Legal basis

Our mission is to finance the Dutch state at the lowest possible cost and at acceptable risk. The latter is hedged by credit limits.

Links to legal bases

• Artikel 11 Financiering staatsschuld: https://www.rijksfinancien.nl/memorie-van-toelichting/2022/OWB/IX/onderdeel/1075511
• Artikel 3: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32019O0007#:~:text=Limitations%20on%20the%20remuneration%20of%20government%20deposits%20held,the%20Eurosystem%27s%20liquidity%20management%20and%20monetary%20policy%20implementation.

Link to Processing Index

NVT: geen verwerking van persoonsgegevens

Elaboration on impact assessments

This algorithm uses public information related to so-called credit ratings focusing on companies, or information from annual reports is used. No personal data is involved.

Operations

Data

The algorithm uses the following data:

• Credit ratings from Moody's, S&P and Fitch, among others.

• Annual reports (e.g. for equity)

Technical design

Based on variables (such as credit rating) and possibly the amount of equity, it calculates how much money can be deposited with a counterparty. The better the rating, the higher the amount.