Credit exposure monitoring is the continuous process by which a bank, broker or corporate treasury measures the amount it has at risk to each borrower, counterparty, group, sector and country, and compares it with approved limits. Exposure includes drawn loans, undrawn commitments, guarantees, settlement positions and the current and potential future value of derivatives, net of any collateral and netting that can be legally relied on.
The work is usually done by a risk or middle-office team independent of the business. Systems aggregate positions from lending, trading and payment platforms, daily or intraday for market-facing business, and report utilisation against each counterparty credit limit and each large exposure limit. Breaches are escalated under credit limit management rules. Monitoring also covers concentration risk and early warning signs such as rating downgrades, so that counterparty risk is reduced before losses arise.