A Study Of Macro-stress Test On Credit Risk Of The Commercial Bank

Emphasizing on the fat tail distribution of the asset portfolio, stress test can evaluate the loss of the asset portfolio in the extreme circumstances which makes up the disadvantage of VaR, the traditional risk management tool. It has been widely used as an important risk management tool by internationally active banks especially since the global financial crisis.The study of the stress test in our country started late compared with the western countries. The methods and technologies also fall behind. Most literatures focus on summarizing the theory and empirical research methods. Only few studies apply empirical analysis to the local banks. Due to the data of the domestic bank system is hard to acquire, the empirical analyses are mostly based on the individual banks. The supervision institution also did few stress test to the whole banking system.This study develops a framework for testing the credit exposures of china’s bank system to macroeconomic shocks based on summarizing the traditional methodologies. First, it improves a lot on establishing the empirical model, selection of risk factor and setting of the stress scenario. Second, basing on the sensitivity and scenario analysis, the empirical study shows that gdp growth rate, loan interest rate, cpi, money supply growth and real estate price index influence the credit risk of commercial bank. When there is economic recession, the credit risk will be more serious, but the loss can be covered by the reserve fund. Third, the study also develops stress test on five different kind of banks individually and compared the risk management between different kind of banks. The result shows that the nationalized banks are affected more serious by the macroeconomic factors than others because of the ownership properties. The national-wide commercial banks and the foreign banks are also influenced seriously by the macroeconomic factors. The city commercial banks and rural commercial bank perform less risk in the stress scenarios because of their territory limitation. So the stress test supervision should be focused on the former ones. Different levels of macro economic index should be used in the stress test according to the specialty of the banks.Basing on the theory and empirical study, this study gives a more perfect way of the stress test. It comes up that the stress test should become a daily tool of risk management and also the important regulatory tools of the supervision department. It also gives suggestions on the technology of the stress test, releasing of the information and the supervision of the stress test which means a lot to a complete risk management system of the commercial bank.