Macro stress testing in the banking system of China

Bo Jiang, Bruce Philp and Zhongmin Wu ()
Additional contact information
Bo Jiang: Nottingham Trent University
Bruce Philp: Nottingham Trent University

Journal of Banking Regulation, 2018, vol. 19, issue 4, No 2, 287-298

Abstract: Abstract In this paper, we develop a framework for macro stress testing of China’s banking system. Our estimates of the correlations between banks’ stability indicators and macroeconomic factors establish significant relationships between the nonperforming loan ratio and key macroeconomic variables, such as GDP growth, the retail price index, the unemployment rate, total fixed investment, the money supply, interest rates, and exchange rates. Further, results from the macro stress tests show that robustness, or otherwise, of the banking system is highly dependent on the source of the potential risk. Our value-at-risk tests suggest that (at a 99% confidence level) the Chinese banking system is robust with respect to interest rate shocks. However, GDP growth and exchange rate shocks exhibit a profound negative effect, indicating that significant losses become likely. These results should inform investors, policy makers, and regulators with regard to loss-limitation in China’s banking system.

Keywords: China; Macro stress testing; Nonperforming loan; VAR analysis (search for similar items in EconPapers)
JEL-codes: C15 E44 E58 G21 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1057/s41261-017-0057-9 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:jbkreg:v:19:y:2018:i:4:d:10.1057_s41261-017-0057-9

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41261/PS2

DOI: 10.1057/s41261-017-0057-9

Access Statistics for this article

Journal of Banking Regulation is currently edited by Dalvinder Singh

More articles in Journal of Banking Regulation from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().