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Management of credit risk

Credit risk is the risk of non-performance by a counterpart in a financial contract.

  • The financial reserves can be invested in bonds and term deposits only where the issuer’s or the bank’s credit rating is at least P-1/A-1/F-1 (Moody’s/Standard & Poor’s/Fitch) for short term investments and Aa3/AA-/AA- for long term investments. For the Liquidity Reserve’s deposits in those local banks through which the State Treasury routes or receives payments, this is relaxed somewhat. There is no limit for AAA-rated investments in government or International Financial Institutions’ bonds or for cash held at central banks.
  • Exposure to a single counterparty can be a maximum of 20% of the financial reserves.
  • Investments in highly rated government bonds must be at least 65% of the Stabilisation Reserve Fund.
  • Financial reserves cannot be invested in ESM and EFSF bonds as Estonia is one of the guarantors of these institutions. The assets of the Stabilisation Reserve Fund are not allowed to be invested in the banks whose deposits are guaranteed in accordance with the Guarantee Fund Act.

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Last updated: 10 September 2020