158. When carrying out a sensitivity analysis of the borrower’s repayment capacity under negative …

When carrying out a sensitivity analysis of the borrower’s repayment capacity under negative future conditions, institutions should take into account the following events that are most relevant to the specific circumstances and the business model of the borrower:

Idiosyncratic events

• a. a severe but plausible decline in a borrower’s revenues or profit margins;
• b. a severe but plausible operational loss event;
• c. the occurrence of severe but plausible management problems;
• d. the failures of significant trading partners, customers or suppliers;
• e. a severe but plausible reputational damage;
• f. a severe but plausible outflow of liquidity, changes in funding or an increase in a borrower’s balance sheet leverage;
• g. adverse movements in the price of assets to which the borrower is predominantly exposed (e.g. as raw material or end product) and foreign exchange risk;

Market events

• h. a severe but plausible macroeconomic downturn;
• i. a severe but plausible downturn in the economic sectors in which the borrower and its clients are operating;
• j. a significant change in political, regulatory and geographical risk;
• k. a severe but plausible increase in the cost of funding, e.g. an increase in the interest rate by 200 basis points on all credit facilities of the borrower.

Analysis of the borrower’s business model and strategy

1. Forbhreathnú

1.1 Tagairtí

1.2 Ceanglais aitheanta

1.3 Caighdeáin ghaolmhara

2. Ceanglais aitheanta

3. Caighdeáin ghaolmhara

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