Prior to the commencement of the Banking (Amendment) Act 2007, the Banking Act set prudential limits on the amount of credit facilities extended by banks to a single borrower or a group of related borrowers. Such limits prevent the default of any single borrower from seriously impacting the financial strength of a bank. MAS has refined these limits to ensure that they remain relevant and are in line with international best practices. Instead of limits based on credit facilities granted, MAS introduced a more comprehensive measure based on exposures which include a bank’s equity investment in, as well as other transactions with a counterparty. For the purpose of complying with the limits, MAS also now recognises a bank's efforts in mitigating risks, by allowing a bank to offset its exposures where these are secured by qualifying collateral, or to substitute its exposures to a counterparty with that of a credit protection provider of good rating.
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