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Stress tests in Hungarian banking after 2008

Author

Listed:
  • Zoltán Pollák

    (Department of Finance, Corvinus University of Budapest, Fővám tér 8, H-1093, Hungary)

  • Dávid Popper

    (ING Bank, Netherlands)

Abstract

The 2008 crisis highlighted the importance of using stress tests in banking practice. The role of these stress tests is to identify and precisely estimate the effect of possible future changes in market conditions on capital adequacy and profitability. This paper seeks to show a possible methodology to calculate the stressed point-in-time probability of default (PD) parameter. The presented approach contains a linear autoregressive distributed lag model to determine the connection between the logit of default rates and the relevant macroeconomic factors, and uses migration matrices to calculate PDs from the forecasted default rates. The authors illustrate the applications of this methodology using the Hungarian real credit portfolio data.

Suggested Citation

  • Zoltán Pollák & Dávid Popper, 2021. "Stress tests in Hungarian banking after 2008," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 71(3), pages 451-463, September.
    • Handle: RePEc:aka:aoecon:v:71:y:2021:i:3:p:451-463
    DOI: 10.1556/032.2021.00022
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    More about this item

    Keywords

    stress test; default rate modelling; migration matrix; probability of default; IRB;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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