Stress Testing of Commercial Banks’ Exposure to Credit Risk: A Study Based on Write-off Nonperforming Loans

In this paper, we assess the capacity of Vietnamese commercial banks to withstand the effects of an increase in credit risk as a result of macroeconomic shocks. Firstly, VAR model is used to estimate the relationship among macro variables (real GDP, real exchange rate, lending interest rate and inflation rate) and from that, macroeconomic scenarios are set up. Next, we employ a GMM model to estimate the relationship between the non-performing loan ratio (credit risk) and macro variables involved in first step. Finally, the new capital requirement ratio (CAR) is recalculated, which is based on the increase in loan provision followed by the rise in non-performing loan. The results show that credit risk which the commercial banks have to face is relatively limited when their risk weighted assets are unchanged. If these numbers, however, increase as banks broaden their lending, all banks’ CAR will reduce remarkably and four large banks will be lack of capital seriously and cannot meet the requirement of Central Bank.

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Agency Cost and Credit Risk Management: Empirical Evidence from Listed Commercial Banks in Nigeria

Asian Journal of Economics Business and Accounting ◽

10.9734/ajeba/2020/v17i230254 ◽

2020 ◽

pp. 1-17

Author(s):

Peter E. Ayunku ◽

Akwarandu Uzochukwu

Keyword(s):

Credit Risk ◽

Commercial Banks ◽

Random Effect ◽

Agency Cost ◽

Data Set ◽

Nonperforming Loans ◽

Ex Post ◽

Effect Regression ◽

Ex Post Facto ◽

New Policies

This study explores the relationship between agency cost and credit risk of quoted commercial banks in Nigeria. Five hypotheses were formulated following the dependent variable of credit risk which we proxy as non-performing loan. The independent variables employed for this study include agency cost, profitability, income diversification, corporate governance and firm leverage. This study is based on ex-post facto research design and made use of panel data set collected from twelve (12) quoted commercial banks within thirteen years of 2007 and 2019 financial year. We analyzed the data set using a random effect regression analysis. The result showed that agency cost which is measured as managerial inefficiency is strongly and positively related to the non-performing loan of commercial banks in Nigeria during the period under investigation. However, in light of the obtained result, we recommend that bank managers in Nigeria should take a keen look at the activities that make up agency cost. Hence, they should consider new policies that will lower the size of its agency cost to reduce the level of nonperforming loans which will ultimately create room for greater profit.

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The Impact of Credit Risk on the Financial Performance of Chinese Banks

Journal of International Business Research and Marketing ◽

10.18775/jibrm.1849-8558.2015.23.3002 ◽

2017 ◽

Vol 2 (3) ◽

pp. 14-17 ◽

Cited By ~ 1

Author(s):

Juliana Stanley Isanzu

Keyword(s):

Credit Risk ◽

Financial Performance ◽

Commercial Banks ◽

Secondary Data ◽

Capital Adequacy ◽

Nonperforming Loans ◽

Panel Data Regression ◽

Capital Adequacy Ratio ◽

Chinese Banks ◽

The Impact

The study aim was to empirically examine the impact of credit risk on the financial performance of Chinese banks. Secondary data was collected from five largest commercial banks in the country for the period of 7 years from 2008 to 2014. The study used nonperforming loans, capital adequacy ratio, impaired loan reserve, and loan impairment charges as measures of credit risk and for a measure of financial performance return on asset was used. Data analysis was done using a balanced panel data regression model, and the study findings reveal nonperforming loan and Capital adequacy have a significant impact of on financial performance of Chinese commercial banks; therefore, the need to control credit risk is crucial for bank financial performance.

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Macro Stress Testing on Credit Risk of Commercial Banks in China Based on Vector Autoregression Models

SSRN Electronic Journal ◽

10.2139/ssrn.1909327 ◽

2011 ◽

Author(s):

Tian Rongjie ◽

Jiawen Yang

Keyword(s):

Credit Risk ◽

Commercial Banks ◽

Stress Testing ◽

Vector Autoregression ◽

Autoregression Models

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Credit Risk Stress Testing of Commercial Banks in Tunisia

International Journal of Accounting and Finance Studies ◽

10.22158/ijafs.v1n1p10 ◽

2018 ◽

Vol 1 (1) ◽

pp. 10

Author(s):

Amel Ben Youssef

Keyword(s):

Credit Risk ◽

Commercial Banks ◽

Fixed Effects ◽

Stress Testing ◽

Stress Test ◽

Negative Relationship ◽

Bank Loans ◽

Economic Downturn ◽

Stress Tests ◽

Fixed Effects Model

Stress tests of credit risk is greatly affected by data constraints in Tunisian banking system. Aiming to improve the assessment of credit risk in such conditions, we propose a model to conduct a macro stress test of credit risk for a sample of ten Tunisian commercial banks based on scenario analysis.The approach consists first in explaining the credit risk for each bank in terms of macroeconomic and bank-specific variables through a static fixed effects model, second in a stress-testing exercise using the Monte Carlo Simulation for generating credit risk losses distributions in case of different scenarios and for determining unexpected losses for each bank. The panel analysis applied suggests a robust negative relationship between the credit risk of bank loans and real GDP growth, with a lag response of four periods. In addition, return on assets ratio and bank size show significant negative effect on credit quality, while the net loans to total asset ratio is positively associated with it. The credit risk stress testing results indicate that an adverse scenario of economic downturn produces increase of the frequency of the higher credit loss comparatively to the lower ones for all banks of the sample and that the estimated unexpected losses that would take place in a stress situation can be covered by available capital of these banks.

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