Monitoring Clearing Members’ Financial Position
The internal rating system is used as an efficient tool to monitor the financial position of clearing members and counterparties in relation to their asset transactions with NCC. Application of the formalized internal ratings allows to promptly respond to a deteriorating financial position of clearing members and counterparties, to establish limits for asset transactions and set aside adequate provisions for possible losses related to risk-bearing transactions.
The internal ratings are assigned in accordance with the Counterparty Internal Rating Guidelines.
As of 01.01.2021, NCC’s internal rating system covered 1,597 organization. The breakdown by types of rated clearing members and counterparties of NCC as of 01.01.2021 is shown in Table 6:
Breakdown by Types of Participants as of 01.01.2021, %
Credit institutions, NCOs, State-Owned Corporations, International Organizations
Commodity Market’s Warehouses/Elevators
Nonresident Credit Institutions
Managing Risks Related to NCC’s Activities as a Credit Institution
Due to its special status and types of activities, NCC follows a conservative asset management policy in allocation of free cash, taking into account the principle of priority, reliability, and adequacy of the liquidity level over the rate of return.
The key elements for managing risks arising in course of activities of NCC as credit institution, include:
- managing the assets and liabilities portfolio;
- monitoring counterparties’ financial position;
- setting limits;
- provisioning for possible losses to cover risks;
- refusal to bear certain types of risks.
Credit Risk Management
The cornerstone of control of credit risks arising in course of cash placement is the limiting of treasury transactions. The existing limit system ensures limiting of the amount of risks assumed by NCC to the level corresponding to the guaranteed compliance with the regulatory requirements of the Bank of Russia and the Company’s Treasury Policy.
As of 01.01.2021, the structure of the assets exposed to credit risk consisted prevailingly of the funds placed on correspondent accounts with credit institutions, mainly the major foreign banks and reliable Russian banks. The largest amount of funds was placed on the correspondent accounts with JP Morgan Chase Bank and its subsidiaries due to their function of settlement banks on the on-exchange FX market of Moscow Exchange Group.
The charts below show the asset grouping based on their credit quality in accordance with Fitch, Expert RA, and similar agencies, as well as the distribution of NCC’s securities portfolio by sectors:
As of 01.01.2021, due to the high quality of assets, the capital adequacy ratio (N1ccp requirement) was 148% (versus the regulatory minimum of 100%), which confirms expressly NCC’s financial sustainability.