Geographic concentration risk from a financial institution (FI) perspective refers to the potential for loss that arises when a significant portion of the institution's lending or investment activities is concentrated in a specific geographic area. This risk can expose the institution to adverse economic conditions, natural disasters, regulatory changes, or political instability in that region, which could negatively impact borrowers' ability to repay loans or the value of investments. Effective management involves diversifying the portfolio across multiple regions, conducting thorough risk assessments for each geographic area, monitoring local economic indicators, and setting limits on exposure to specific locations to mitigate potential risks.

Basel scope:

• Pillar 2

Capital requirements:

Mitigated by Capital

Related Links:

•       The Basel framework
•                 BCBS 424 - Basel III: Finalising post-crisis reforms
•                 Basel Framework
•                 BCBS 347 - Revisions to the Standardised Approach for credit risk