Stress Testing of Commercial Bank Loan Portfolio

Currently, banking supervision is becoming more and more sophisticated and banks are required to comply with new more stringent requirements. These tightening are associated with fluctuations in the economy, which lead to the bankruptcy of banks. Stress testing is used as one of the tools to simulate crisis situations and losses. Stress testing is obligatory for all banks. The goal: to conduct stress testing of the loan portfolio of a commercial bank. To accomplish this goal, the following tasks were set: • to consider the theoretical basis of the concepts of stress testing and loan portfolio • analyze existing models used in stress testing • identify ways to build stress testing scenarios • build a model of the influence of various factors on the quality of the loan portfolio • on the basis of the model, conduct stress testing and advise the bank on managing the loan portfolio As a result of the study, a model of dependence of the share of overdue loans on micro and macro factors was built. The GDP growth rate, the unemployment rate and the inflation rate, as well as the structure of the loan portfolio have the crucial meaning. Based on the model, stress testing was conducted on 5 different scenarios, both historical and hypothetical. The greatest losses at the moment the bank would have suffered from the historical scenario based on the crisis of 2009. Based on the results obtained, recommendations were made to improve the management of the loan portfolio.