Stress testing credit card portfolios: an application in South Africa

Yixin Seah, Mee Chi So and Lyn C Thomas
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Yixin Seah: Southampton Management School, University of Southampton, Southampton, UK
Mee Chi So: Southampton Management School, University of Southampton, Southampton, UK
Lyn C Thomas: Southampton Management School, University of Southampton, Southampton, UK

Journal of the Operational Research Society, 2014, vol. 65, issue 3, 351-362

Abstract: Motivated by a real problem, this study aims to develop models to conduct stress testing on credit card portfolios. Two modelling approaches were extended to include the impact of lenders’ actions within the model. The first approach was a regression model of the aggregate losses based on economic variables with autocorrelations of the errors. The second approach was a set of vintage-level models that highlighted the months-on-book effect on credit losses. A case study using the models was described using South African credit card data. In this case, the models were used to stress test the credit card portfolio under several economic scenarios.

Date: 2014
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