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Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia

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Abstract

The recent financial crisis emphasized the need for effective financial stability analyses and tools for detecting systemic risk. This paper looks at the assessment of banking sector resilience through stress testing. We argue such analyses are valuable even in emerging economies, which suffer from limited data availability, short time series, and structural breaks. We propose a top-down stress test methodology that employs relatively limited information to overcome this data problem. Moreover, as credit growth in emerging economies tends to be rather volatile, we rely on a dynamic approach projecting key balance sheet items. The application of our proposed stress test framework to the Russian banking sector reveals high sensitivity of the capital adequacy ratio to the economic cycle. This shows up in both of the two-year macroeconomic scenarios considered: a baseline and an adverse one. Both scenarios indicate a need to increase the capital of the Russian banking sector. Furthermore, given that Russia’s banking sector is small and fragmented by comparison with advanced economies, a loss of external financing could cause profound economic stress, especially for small and medium-sized enterprises. The Russian state has a low public debt-to-GDP ratio and plays a decisive role in the banking sector. These factors allow sufficient fiscal space for recapitalization of problematic banks under our proposed baseline and adverse scenarios.

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  • Zuzana Fungacova & Petr Jakubik, 2013. "Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(1), pages 87-105, March.
  • Handle: RePEc:fau:fauart:v:63:y:2013:i:1:p:87-105
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    1. Jarko Fidrmuc & Zuzana Fungáčová & Laurent Weill, 2015. "Does Bank Liquidity Creation Contribute to Economic Growth? Evidence from Russia," Open Economies Review, Springer, vol. 26(3), pages 479-496, July.
    2. Buncic, Daniel & Melecky, Martin, 2013. "Macroprudential stress testing of credit risk: A practical approach for policy makers," Journal of Financial Stability, Elsevier, vol. 9(3), pages 347-370.
    3. Karel Janda & Van Quang Tran & Pavel Zetek, 2015. "Faktory ovlivňující zapojení žen v mikrofinancích
      [The Factors Influencing the Participation of Women in Microfinance]
      ," Politická ekonomie, University of Economics, Prague, vol. 2015(3), pages 363-381.
    4. Oxana Babecka Kucharcukova & Alexis Derviz & Vaclav Hausenblas & Michal Hlavacek & Mark Joy & Narcisa Kadlcakova & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Ivana Kubicova & Jitka Lesanovska, 2014. "Macroprudential Research: Selected Issues," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 12, number rb12/2 edited by Jan Babecky & Borek Vasicek.
    5. Robert Ambrisko & Vitezslav Augusta & Jan Babecky & Michal Franta & Dana Hajkova & Petr Kral & Jan Libich & Pavla Netusilova & Milan Rikovsky & Jakub Rysanek & Pavel Soukup & Petr Stehlik & Vilem Vale, 2013. "Macroeconomic Effects of Fiscal Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 11, number rb11/2 edited by Jan Babecky & Kamil Galuscak.
    6. Janda, Karel & Kravtsov, Oleg, 2016. "Interdependencies between Leverage and Capital Ratios in the Central and Eastern European Banks," MPRA Paper 74560, University Library of Munich, Germany.
    7. Kamil Galuscak & Adam Gersl & Marcela Gronychova & Petr Hlavac & Petr Jakubik & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Jakub Seidler, 2014. "Stress-Testing Analyses of the Czech Financial System," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 12, number rb12/1 edited by Jan Babecky & Roman Horvath.
    8. Janda, Karel & Kravtsov, Oleg, 2016. "Interdependencies between Leverage and Capital Ratios in the Banking Sector of the Czech Republic," MPRA Paper 74457, University Library of Munich, Germany.
    9. Alesia Kalbaska, 2013. "From Sovereigns to Banks: Evidence on Cross-border Contagion (2006-2011)," Department of Economics University of Siena 680, Department of Economics, University of Siena.
    10. Frantisek Brazdik & Jan Bruha & Michal Franta & David Havrlant & Tibor Hledik & Tomas Holub & Zuzana Humplova & Frantisek Kopriva & Jiri Polansky & Marek Rusnak & Jaromir Tonner, 2015. "Forecasting," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 13, number rb13/1 edited by Jan Babecky & Kamil Galuscak.
    11. Michal Andrle & Oxana Babecka Kucharcukova & Jaromir Baxa & Jan Bruha & Peter Claeys & Jan Filacek & Jakub Mateju & Miroslav Plasil & Serhat Solmaz & Borek Vasicek, 2015. "Monetary Policy Challenges in a Low-Inflation Environment," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 13, number rb13/2 edited by Jan Babecky & Michal Franta.

    More about this item

    Keywords

    stress testing; bank; Russia;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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