Credit risk stress testing : an exercise for colombian banks

In this paper we seek to assess the ability of banks to withstand the effects of an increase in credit risk as a result of changes in the macroeconomic environment. To do so we estimate a credit risk model for each loan type as a function of four macroeconomic variables commonly used in the literatu...

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Autores Principales: Cabrera-Rodríguez, Wilmar Alexander, Gutiérrez-Rueda, Javier, Mendoza-Gutiérrez, Juan Carlos
Formato: Documento de trabajo (Working Paper)
Lenguaje:Inglés (English)
Publicado: Banco de la República de Colombia 2012
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Acceso en línea:http://repositorio.banrep.gov.co/handle/20.500.12134/2135
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spelling oai:RI-BanRep:20.500.12134-21352019-05-28T15:26:17Z Credit risk stress testing : an exercise for colombian banks Cabrera-Rodríguez, Wilmar Alexander Gutiérrez-Rueda, Javier Mendoza-Gutiérrez, Juan Carlos Pruebas de estrés Créditos en mora Retorno de activos Coeficiente de solvencia C25 - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities D22 - Firm Behavior: Empirical Analysis G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages G33 - Bankruptcy; Liquidation VECX Stress testing Non-performing loans Return on assets Capital adequacy ratio Riesgo bancario -- Colombia Préstamos bancarios -- Colombia Riesgo crediticio -- Colombia C25 - Modelos de regresión discreta y elección cuantitativa; Regresores discretos; Proporciones; Probabilidad D22 - Comportamiento de la empresa: análisis empíricos G21 - Bancos; Instituciones de depósito; Instituciones Microfinancieras; Hipotecas G33 - Insolvencia; Liquidación In this paper we seek to assess the ability of banks to withstand the effects of an increase in credit risk as a result of changes in the macroeconomic environment. To do so we estimate a credit risk model for each loan type as a function of four macroeconomic variables commonly used in the literature. Then, we forecast the dynamics of non-performing loans (NPL) and total loans in a stressed scenario in a time span of 8 quarters. Using these results, we quantify the effects of the macroeconomic shock on bank’s performance indicators, such as the NPL ratio, the return on assets, and the capital adequacy ratio. The results suggest that most Colombian banks are able to withstand a large shock to economic activity. We also perform a reverse stress testing to quantify how much NPL should increase in order to bring the earnings before taxes to zero. 2012-09-01 2012-09 Working Paper Documentos de trabajo Published Version http://repositorio.banrep.gov.co/handle/20.500.12134/2135 http://hdl.handle.net/20.500.12134/2135 eng Documentos de Trabajo Temas de Estabilidad Financiera Temas de Estabilidad Financiera ; No. 73 https://ideas.repec.org/p/bdr/temest/073.html Open Access https://creativecommons.org/licenses/by-nc-sa/4.0/ Acceso abierto Atribucion-NoComercial-CompartirIgual CC BY-NC-SA 4.0 Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva. 20 páginas : ilustraciones, gráficas, tablas PDF application/pdf Bogotá Banco de la República de Colombia Breusch, T. (1978), ‘Testing for Autocorrelation in Dynamic Linear Models’, Australien Economic Papers (17), 334–355. Edgerton, D. & Shukur, G. (1999), ‘Testing Autocorrelation in a System Perspective’, Econometric Reviews (18), 343–386. Wong, J., Choi, K. & Fong, T. (2008), ‘A Framework for Stress Testing Banks’ Credit Risk’, The Journal of Risk Model Validation 2(1), 3–23.
institution Repositorio Institucional del Banco de la República de Colombia
collection DSpace
language Inglés (English)
topic Pruebas de estrés
Créditos en mora
Retorno de activos
Coeficiente de solvencia
C25 - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
D22 - Firm Behavior: Empirical Analysis
G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
G33 - Bankruptcy; Liquidation
VECX
Stress testing
Non-performing loans
Return on assets
Capital adequacy ratio
Riesgo bancario -- Colombia
Préstamos bancarios -- Colombia
Riesgo crediticio -- Colombia
C25 - Modelos de regresión discreta y elección cuantitativa; Regresores discretos; Proporciones; Probabilidad
D22 - Comportamiento de la empresa: análisis empíricos
G21 - Bancos; Instituciones de depósito; Instituciones Microfinancieras; Hipotecas
G33 - Insolvencia; Liquidación
spellingShingle Pruebas de estrés
Créditos en mora
Retorno de activos
Coeficiente de solvencia
C25 - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
D22 - Firm Behavior: Empirical Analysis
G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
G33 - Bankruptcy; Liquidation
VECX
Stress testing
Non-performing loans
Return on assets
Capital adequacy ratio
Riesgo bancario -- Colombia
Préstamos bancarios -- Colombia
Riesgo crediticio -- Colombia
C25 - Modelos de regresión discreta y elección cuantitativa; Regresores discretos; Proporciones; Probabilidad
D22 - Comportamiento de la empresa: análisis empíricos
G21 - Bancos; Instituciones de depósito; Instituciones Microfinancieras; Hipotecas
G33 - Insolvencia; Liquidación
Cabrera-Rodríguez, Wilmar Alexander
Gutiérrez-Rueda, Javier
Mendoza-Gutiérrez, Juan Carlos
Credit risk stress testing : an exercise for colombian banks
description In this paper we seek to assess the ability of banks to withstand the effects of an increase in credit risk as a result of changes in the macroeconomic environment. To do so we estimate a credit risk model for each loan type as a function of four macroeconomic variables commonly used in the literature. Then, we forecast the dynamics of non-performing loans (NPL) and total loans in a stressed scenario in a time span of 8 quarters. Using these results, we quantify the effects of the macroeconomic shock on bank’s performance indicators, such as the NPL ratio, the return on assets, and the capital adequacy ratio. The results suggest that most Colombian banks are able to withstand a large shock to economic activity. We also perform a reverse stress testing to quantify how much NPL should increase in order to bring the earnings before taxes to zero.
format Documento de trabajo (Working Paper)
author Cabrera-Rodríguez, Wilmar Alexander
Gutiérrez-Rueda, Javier
Mendoza-Gutiérrez, Juan Carlos
author_facet Cabrera-Rodríguez, Wilmar Alexander
Gutiérrez-Rueda, Javier
Mendoza-Gutiérrez, Juan Carlos
author_sort Cabrera-Rodríguez, Wilmar Alexander
title Credit risk stress testing : an exercise for colombian banks
title_short Credit risk stress testing : an exercise for colombian banks
title_full Credit risk stress testing : an exercise for colombian banks
title_fullStr Credit risk stress testing : an exercise for colombian banks
title_full_unstemmed Credit risk stress testing : an exercise for colombian banks
title_sort credit risk stress testing : an exercise for colombian banks
publisher Banco de la República de Colombia
publishDate 2012
url http://repositorio.banrep.gov.co/handle/20.500.12134/2135
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score 11,15118