Credit risk stress testing: theory and practice of the Spanish evidence

Ahlem-Selma Messai and Mohamed Imen Gallali

International Journal of Management and Enterprise Development, 2018, vol. 17, issue 2, 136-154

Abstract: This paper presents a new methodology to estimate banking system credit portfolio's losses. For this purpose, we used quarterly data for the period from 2000 to 2011 in order to estimate unexpected losses in the credit portfolio for four Spanish sectors under extremely bad conditions. Our results show that macroeconomic shocks (extreme inflation, gross domestic product and unemployment rates) affect negatively the Spanish banking system. The unusual thing about this study is that it was conducted with different sectors (industry, construction, agriculture and services). We find that construction was the most damaged sector. Our study will discuss the reasons for adopting stress tests and will provide solutions to prevent crises and to absorb losses especially in Spain.

Keywords: credit risk stress testing; loss distribution; non-performing loans; Spanish sectors. (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmede:v:17:y:2018:i:2:p:136-154

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