People’s Republic of China–Hong Kong Special Administrative Region: Financial Sector Assessment Program-Stress Testing the Banking Sector-Technical Note

International Monetary Fund

No 2014/210, IMF Staff Country Reports from International Monetary Fund

Abstract: This Technical Note on Stress Testing the Banking Supervision was prepared in the context of the Financial Sector Assessment Program (FSAP) for the People’s Republic of China–Hong Kong Special Administrative Region (HKSAR). Bank liquidity tests focus on sudden, sizable withdrawals of funding and the sufficiency of existing assets to withstand those shocks under stressed conditions. The stress test results confirm a high degree of resilience of the sector. This reflects the strength of the banks at the starting position, which reduces their fundamental vulnerability to shocks. Banks in HKSAR hold very high levels of capital, are very profitable, and have a low level of asset impairments amid stable funding profiles. The Hong Kong Monetary Authority is encouraged to continue its integration of risk-based supervision in the development of stress test scenarios for macroprudential policy and surveillance. Banking supervisors routinely conduct stress tests and, from time to time, modify relevant assumptions in order to support thematic reviews of identified vulnerabilities against emerging risks.

Keywords: ISCR; CR; banking sector; put option; capital ratio; price index; asset swap; commercial bank; credit risk; hurdle rate; capital adequacy ratio; bank loan; Stress testing; Currencies; Commercial banks; Solvency stress testing; Basel III; Asia and Pacific; East Asia (search for similar items in EconPapers)
Pages: 127
Date: 2014-07-16
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