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Credit Risk Stress Testing Practices in BRICS: Post-global Financial Crisis Scenario

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  • A. P. Pati

Abstract

The impact of global financial crisis (GFC) was well pervasive with no exception to Brazil, Russia, India, China and South Africa (BRICS) nations. Banking being the conduit to the market was affected severely in many economies including BRICS, where credit risk emanated from non-performing loans (NPL) was ascribed as the main cause of concern. With the help of The World Bank data set of pre-GFC and post-GFC, this article attempts to look into the credit risk testing practices of BRICS. The Chow’s F -test based on NPL shows no shift in the profitability of banking across all the five economies, whereas a shift in the capital adequacy ratio (CAR) of Russia, India and China in post-crisis years was visible. The BRICS though has different political set-ups follow the international practice of credit risk stress testing for assessing the resilience of their banking sector. Before the crisis, International Monetary Fund (IMF) assessed stress testing for credit risk was in place with BRICS (except India) and currently all the countries are conducting such tests, either independently by their own central banks or with the help of IMF. Bank-specific tests, however, were not found. While India and South Africa are conducting such tests regularly, other three economies are lacking behind. Most of the assessments adopt simulated scenario analysis as well as sensitivity tests for credit risk. While India has been conducting the tests at macro, sector and bank group levels, others are concentrating on macro-level and bank group level. Though variations in selecting variables are found across BRICS, it was found to be very insignificant. The cautions that came along with these tests were mostly found for next 1 to 2 years indicating the test lacuna in predicting bank crisis on a long term.

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  • A. P. Pati, 2017. "Credit Risk Stress Testing Practices in BRICS: Post-global Financial Crisis Scenario," Global Business Review, International Management Institute, vol. 18(4), pages 936-954, August.
    • Handle: RePEc:sae:globus:v:18:y:2017:i:4:p:936-954
    DOI: 10.1177/0972150917692269
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    References listed on IDEAS

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    Cited by:

    1. Ramesh Chandra Das & Utpal Das & Amaresh Das, 2021. "BRICS Nations and Income Convergence: An Insight from the Quarterly Data for 2006Q1–2017Q2," Global Business Review, International Management Institute, vol. 22(4), pages 1054-1069, August.
    2. Abayomi Oredegbe, 2022. "Competition and Banking Industry Stability: How Do BRICS and G7 Compare?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 21(1), pages 7-31, March.
    3. Rubi Ahmad & Mohamed Albaity, 2019. "The Determinants of Bank Capital for East Asian Countries," Global Business Review, International Management Institute, vol. 20(6), pages 1311-1323, December.
    4. Balaga Mohana Rao & Puja Padhi, 2020. "Common Determinants of the Likelihood of Currency Crises in BRICS," Global Business Review, International Management Institute, vol. 21(3), pages 698-712, June.
    5. Walid Mansour & Hechem Ajmi & Karima Saci, 2022. "Regulatory policies in the global Islamic banking sector in the outbreak of COVID-19 pandemic," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(3), pages 265-287, September.

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