Stress Testing Corporate Balance Sheets in Emerging Economies

Julian Chow

No 2015/216, IMF Working Papers from International Monetary Fund

Abstract: In recent years, firms in emerging market countries have increased borrowing, particularly in foreign currency, owing to easy access to global capital markets, prolonged low interest rates and good investment opportunities. This paper discusses the trends in emerging market corporate debt and leverage, and illustrates how those firms are vulnerable to interest rate, exchange rate and earnings shocks. The results of a stress test show that while corporate sector risk remains moderate in most emerging economies, a combination of macroeconomic and financial shocks could significantly erode firms’ ability to service debt and lead to higher debt at risk, especially in countries with high shares of foreign currency debt and low natural hedges.

Keywords: WP; emerging market; corporate; balance sheet; emerging market corporate; interest expense; Emerging market corporate debt; leverage; debt at risk; balance sheet information; on-balance sheet derivatives obligation; debt issuance; liabilities structure; banking sector; expenses of the corporate; debt index; foreign currency issuance; Emerging and frontier financial markets; Financial statements; Stress testing; Currencies; Corporate sector; Global (search for similar items in EconPapers)
Pages: 18
Date: 2015-09-30
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Citations: View citations in EconPapers (15)

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