BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 3/2012:
Bank stress tests as an information device for emerging markets: The case of Russia
Zuzana Fungácová ()
and Petr Jakubík
Abstract: The recent financial crisis emphasised the need for
effective financial stability analyses and tools for detecting systemic
risk. This paper looks at assessment of banking sector resilience through
stress testing. We argue such analyses are valuable even in emerging
economies that 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 dynamic approach projecting key balance sheet items.
Application of our proposed stress test framework to the Russian banking
sector reveals a high sensitivity of the capital adequacy ratio to the
economic cycle that shows up in both of the two-year macroeconomic
scenarios considered: a baseline and an adverse one. Both scenarios
indicate the need for capital increase in the Russian banking sector.
Furthermore, given that Russia’s banking sector is small and fragmented
relative to advanced economies, the loss of external financing can cause
profound economic stress, especially for medium-sized and small
enterprises. The Russian state has a low public debt-to-GDP ratio and plays
decisive role in the banking sector. These factors allow sufficient fiscal
space for recapitalisation of problematic banks under both of our proposed
baseline and adverse scenarios.
Keywords: stress testing; bank; Russia; (follow links to similar papers)
JEL-Codes: G21; G28; P34; (follow links to similar papers)
27 pages, February 23, 2012
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