Dynamic Balance Sheet Simulation and Credit Default Prediction: A Stress Test Model for Colombian Firms

Diego Fernando Cuesta-Mora and Camilo Gómez

Borradores de Economia from Banco de la Republica de Colombia

Abstract: This paper presents a stress test model used by the Financial Stability Department of the Banco de la República to assess the financial vulnerability of Colombian non financial firms. The model supports the Central Bank’s biannual Financial Stability Report and informs policy decisions by identifying firms that are exposed to credit risk under adverse economic conditions. The proposed model integrates three components: a dynamic balance sheet simulation framework; a suite of machine learning models to estimate credit default probabilities; and a final module that identifies firms at risk of default. This tool strengthens the Central Bank’s capacity to monitor and evaluate risks in the corporate sector with a forward-looking perspective. The paper details each component and illustrates the model’s results using a stress scenario. *****RESUMEN: Este documento presenta un modelo de prueba de estrés empleado por el Departamento de Estabilidad Financiera del Banco de la República para evaluar la vulnerabilidad financiera de las firmas no financieras colombianas. El modelo apoya el Reporte de Estabilidad Financiera semestral del Banco de la República y aporta al diseño de políticas al identificar firmas expuestas al riesgo crediticio en condiciones macroeconómicas adversas. El modelo propuesto integra tres componentes: un marco dinámico de simulación de balances; un conjunto de modelos de machine learning para estimar probabilidades de incumplimiento crediticio; y un módulo final que identifica firmas en riesgo de incumplimiento crediticio. Esta herramienta fortalece la capacidad del Banco de la República para monitorear y evaluar riesgos en el sector empresarial de forma prospectiva. El documento detalla cada componente e ilustra los resultados mediante un escenario de estrés.

Keywords: Stress Testing; Credit Risk; Credit Default; Machine Learning; Prueba de estrés; Riesgo crediticio; Incumplimiento crediticio. (search for similar items in EconPapers)
JEL-codes: G01 G17 G21 G3 (search for similar items in EconPapers)
Pages: 47
Date: 2025-08
New Economics Papers: this item is included in nep-cmp, nep-for and nep-rmg
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https://doi.org/10.32468/be.1325

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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1325

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