Stress tests in Hungarian banking after 2008

Zoltán Pollák () and Dávid Popper
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Zoltán Pollák: Department of Finance, Corvinus University of Budapest, Fővám tér 8, H-1093, Hungary
Dávid Popper: ING Bank, Netherlands

Acta Oeconomica, 2021, vol. 71, issue 3, 451-463

Abstract: The 2008 crisis highlighted the importance of using stress tests in banking practice. The role of these stress tests is to identify and precisely estimate the effect of possible future changes in market conditions on capital adequacy and profitability. This paper seeks to show a possible methodology to calculate the stressed point-in-time probability of default (PD) parameter. The presented approach contains a linear autoregressive distributed lag model to determine the connection between the logit of default rates and the relevant macroeconomic factors, and uses migration matrices to calculate PDs from the forecasted default rates. The authors illustrate the applications of this methodology using the Hungarian real credit portfolio data.

Keywords: stress test; default rate modelling; migration matrix; probability of default; IRB (search for similar items in EconPapers)
JEL-codes: C13 G21 (search for similar items in EconPapers)
Date: 2021
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