What is a Country Limit?

Mary McMahon
Mary McMahon
Mary McMahon
Mary McMahon
The country limit is the maximum amount a bank puts in place for all borrowing in a foreign country.
The country limit is the maximum amount a bank puts in place for all borrowing in a foreign country.

A country limit is a maximum a bank puts in place for all borrowing in a foreign country. Country limits are used to limit risk and are based on a number of complicated factors the bank takes into account when setting or adjusting limits. They are usually a matter of internal bank policy rather than being publicly stated and they are subject to change in response to shifting market conditions and other events. With a country limit, banks cycle loans in and out to keep lending without exceeding the limit.

Every kind of borrowing is covered by a country limit, including public and private borrowing, personal and institutional debt, mortgages, business loans, lines of credit, and any other forms of lending a bank offers. The total cap is used to limit the amount of money a bank is floating in loans in a nation at any given time.

One obvious consideration for a country limit is the current exchange rate and the economic health in a nation. A country with a strong economy is a good candidate for a high limit, representing a low lending risk because people will probably be able to repay loans. On the other hand, in a country with runaway inflation and an unstable economy, lending is more risky, and the risks associated with individual loans increase. The political climate can also be a concern when establishing a country limit. Politics can influence economic policy and financial stability.

Banks may also consider issues like the total amount of debt they can carry safely, and the best way to invest their resources. A bank operating in 10 countries might find some safer and easier to work in than others, and increase country limits in those nations while cutting down lending in others. The business climate is also an issue, as banks tend to prefer to operate in countries with less regulation and oversight, and governments may offer incentives to get a bank to increase its country limit.

Individual borrowers are still carefully evaluated and the borrower profiles as a whole are considered when thinking about a lending limit. Banks tend to select borrowers with low risks and if they are carrying numerous risky loans, they may reduce the country limit to reduce risk until those borrowers have discharged their debts. Limits are also placed on individual borrowers, as banks do not want to write loans people cannot repay, and they work with other financial institutions to determine a reasonable amount of individual debt.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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    • The country limit is the maximum amount a bank puts in place for all borrowing in a foreign country.
      By: Pefkos
      The country limit is the maximum amount a bank puts in place for all borrowing in a foreign country.