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Macro Stress Testing of the Slovak Banking Sector

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  • Juraj Zeman

    ()
    (Research Department,National Bank Of Slovakia)

  • Pavol Jurca

    ()
    (Regulatory and risk management methodology department,National Bank Of Slovakia)

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    Abstract

    In this paper we estimate the impact of a simulated slowdown in the Slovak economy on the Slovak banking sector. Using a vector error correction model, the impact of the slowdown on interest rates and exchange rates is assessed. This allows us to estimate the aggregated impact of the credit risk, interest rate risk and exchange rate risk. The significance of indirect impact of interest rate risk and foreign exchange risk via possible worsening of financial situation of debtors has also been considered. The results suggest that even significant slowdown of the GDP growth would not substantially threaten the Slovak banking sector provided that the response of the monetary policy would be adequate. Given the current portfolio of the Slovak banking sector, this monetary policy would have positive impact on Slovak banking sector also by direct increase of real value of this portfolio, mainly through the interest rate channel. The shocks in GDP growth that would be left without relevant response in other factors might represent more noticeable threat.

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    Bibliographic Info

    Paper provided by Research Department, National Bank of Slovakia in its series Working and Discussion Papers with number WP 1/2008.

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    Length: 26 pages
    Date of creation: Jan 2008
    Date of revision:
    Handle: RePEc:svk:wpaper:1001

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    Related research

    Keywords: Macro stress testing; Credit risk; Slovakia;

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    Cited by:
    1. Festic, Mejra & Kavkler, Alenka & Repina, Sebastijan, 2011. "The macroeconomic sources of systemic risk in the banking sectors of five new EU member states," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 310-322, February.
    2. Fidrmuc, Jarko & Hainz, Christa, 2010. "Default rates in the loan market for SMEs: Evidence from Slovakia," Economic Systems, Elsevier, vol. 34(2), pages 133-147, June.

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