The Application Of Macro Stress Testing In Management Of The Real Estate Credit Risk In China

Along with the process of China’s urbanization and modernization, the real estateindustry has experienced10years’ vigorous development accompanied by the country’srapid economic growth. The real estate industry is a capital-intensive industry, and thebank’s real estate credit funds play an irreplaceable role to support the real estate industry.In the period of rising house prices, the bank issued a large number of real estate loans ashigh-quality loans.In the past ten years, house prices have been rising year by year, and the increasewas much higher than the level of income growth. However, this rapid rise is notsustained. The significant drop of real estate prices will affect the solvency of businessesand individuals, then increase the risk of credit default. In the past two years, the countryhave taken a number of measures of the financial, land, taxation and direct administrativepurchase to strengthen the regulation of the real estate market. With the implementationof the various control policies and measures, the real estate market trend becomes steady,the number of city which experiences home prices decline increases, and real estatedevelopment and sales growth rate drop quickly. As a result, the bank’s non-performingloans and non-performing loan rate increase. What effect does the decline of house priceshave on the quality of bank real estate loans? Is the bank able to bear the impact offalling house prices? These questions become an issue of concern of society.As an approach to risk management, stress testing rises in recent years. Because thequantitative analysis can be done to evaluate the unexpected loss, commercial banksoften use stress testing as one of the means of forward-looking risk management. In thispaper, we use quantitative model based on factors affecting the quality of real estateloans and bank credit assets safety index to carry out empirical analysis and historicaldata to accurately quantify the relationship between both of them. Then we measure thecapacity of commercial banks to undertake and absorb mortgage loss by analyzingimpact of bank’s real estate loan quality under the assuming situation.The results show that bank’s real estate has a rise of certain level under the stressscenarios. However, the effect of the overall profit or loss of the banking sector and capital that real estate market fluctuations bring is still in the controllable range due toChina’s banking industry risk-resisting ability.