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The Methodology of Stress Tests for the Kazakh Banking System

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  • Natalia Podlich
  • Didar Illyasov
  • Elena Tsoy
  • Shynar Shaikh

Abstract

In this paper, we describe the results for the section "Stress Testing Methodology for Kazakh Banking System" which is part of the "Development of an Early Warning System for Kazakhstan" project. The participating Kazakh institutions are the National Bank of Kazakhstan (NBRK), the Financial Supervisory Agency (FSA) and the National Analytical Centre of the Government and the National Bank of Kazakhstan (NAC). In this section, we apply different methodologies for developing stress testing tools for the Kazakh banking system: the "bottom-up" and "top-down" approaches. The "bottom-up" approach is based on questionnaires we have transmitted to Kazakh banks asking them to calculate their own risk positions under stress. The collected results and the analyses show that banks tend to underestimate the decline in real estate prices and to overestimate currency devaluation. In the "top-down" approach, we apply methodologies for portfolio and macro stress tests to raw data collected by FSA and estimate the impact of the external macroeconomic shocks on the expected losses of financial institutions. In the portfolio stress test, the change in the expected losses under stress ranges between 34 percent and 86 percent relative to the unconditional expected losses. In the macro stress test, we find an average change of 26 percent in the ratio of bad loans to total loans under stress scenario 1 and an average change of 80 percent under scenario 2 relative to the baseline scenario.

Suggested Citation

  • Natalia Podlich & Didar Illyasov & Elena Tsoy & Shynar Shaikh, 2010. "The Methodology of Stress Tests for the Kazakh Banking System," ifo Working Paper Series 85, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
  • Handle: RePEc:ces:ifowps:_85
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    References listed on IDEAS

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    1. Glenn Hoggarth & Steffen Sorensen & Lea Zicchino, 2005. "Stress tests of UK banks using a VAR approach," Bank of England working papers 282, Bank of England.
    2. Mario Quagliariello, "undated". "Banks' Performance over the Business Cycle: A Panel Analysis on Italian Intermediaries," Discussion Papers 04/17, Department of Economics, University of York.
    3. Pesola, Jarmo, 2001. "The role of macroeconomic shocks in banking crises," Research Discussion Papers 6/2001, Bank of Finland.
    4. repec:onb:oenbwp:y:2002:i:3:b:3 is not listed on IDEAS
    5. Harvir Kalirai & Martin Scheicher, 2002. "Macroeconomic Stress Testing: Preliminary Evidence for Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 58-74.
    6. Darren Pain, 2003. "The provisioning experience of the major UK banks: a small panel investigation," Bank of England working papers 177, Bank of England.
    7. Klaus Duellmann & Martin Erdelmeier, 2009. "Crash Testing German Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 139-175, September.
    8. Petr Jakubik & Christian Schmieder, 2008. "Stress Testing Credit Risk: Is the Czech Republic Different from Germany?," Working Papers 2008/9, Czech National Bank, Research Department.
    9. Sorge, Marco & Virolainen, Kimmo, 2006. "A comparative analysis of macro stress-testing methodologies with application to Finland," Journal of Financial Stability, Elsevier, vol. 2(2), pages 113-151, June.
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