A Macro Stress Test Model of Credit Risk for the Brazilian Banking Sector

Francisco Vazquez, Benjamin Tabak and Marcos Souto

No 226, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper proposes a model to conduct macro stress test of credit risk for the banking system based on scenario analysis. We employ an original bank level data set with disaggregated credit loans for business and consumer loans. The results corroborate the presence of a strong procyclical behavior of credit quality, and show a robust negative relationship between (the logistic transformation of) NPLs and GDP growth, with a lag response up to three quarters. The models also indicate substantial variations in the cyclical behavior of NPLs across credit types. Stress tests suggest that the banking system is well prepared to absorb the credit losses associated with a set of distressed macroeconomic scenarios without threatening financial stability.

Date: 2010-11
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-mac
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Citations: View citations in EconPapers (6)

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Journal Article: A macro stress test model of credit risk for the Brazilian banking sector (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:226

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