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Macroprudential Stress-Testing The Indonesian Banking System Using The Credit Risk Model

Author

Listed:
  • Shilvia Kurniawati

    (Institut Teknologi Bandung)

  • Deddy Priatmodjo Koesrindartoto

    (Institut Teknologi Bandung)

Abstract

This study implements a macroprudential stress test and develops the Economic Risk Weighted-Capital Adequacy Ratio (ERW-CAR) to evaluate the resilience of the Indonesian banking sector. The results show that the historical and one-year ahead predicted ERW-CARs are currently three percent lower than the Indonesia regulatory CAR, and continue to decrease by nearly two percent following an exchange rate shock. However, the capital adequacy requirement stands above the eight percent threshold and the banks are still able to optimize their capital allocation.

Suggested Citation

  • Shilvia Kurniawati & Deddy Priatmodjo Koesrindartoto, 2020. "Macroprudential Stress-Testing The Indonesian Banking System Using The Credit Risk Model," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 23(1), pages 121-138, April.
    • Handle: RePEc:idn:journl:v:23:y:2020:i:1f:p:121-138
    DOI: https://doi.org/10.21098/bemp.v23i1.1093
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    References listed on IDEAS

    as
    1. Edward I. Altman & Andrea Resti & Andrea Sironi, 2002. "The link between default and recovery rates: effects on the procyclicality of regulatory capital ratios," BIS Working Papers 113, Bank for International Settlements.
    2. Antonella Foglia, 2009. "Stress Testing Credit Risk: A Survey of Authorities' Aproaches," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 9-45, September.
    3. Gabriel Jiménez & Jesús Saurina, 2006. "Credit Cycles, Credit Risk, and Prudential Regulation," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
    4. Martin Melecky & Anca Maria Podpiera, 2012. "Macroprudential Stress-Testing Practices of Central Banks in Central and Southeastern Europe: Comparison and Challenges Ahead," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(4), pages 118-134, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stress Test; Credit Risk; Macroprudential Supervision;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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