Credit Risk Stress Testing of Russian Systemically Important Banks

Russia's economic growth rate is closely related to the growth rate of the global economy. The unstable position of the global financial market mirrors the financial market of our country. This affects the quality of the loan portfolio and leads to an increase in the share of overdue debts. The purpose of the paper is to develop the author’s model of credit risk stress testing using the example of systemically important banks in Russia. Systemically important banks are the largest banks and the stability of these banks in terms of credit risk affects the stability of the entire banking system. The study analyzed the theoretical and methodological aspects of stress testing. Stress scenarios and a credit risk VAR model were constructed for each systemically important bank. As the dependent variable of the model, we took the share of overdue debt on the loan portfolio of each bank, the regressors were macroeconomic and microeconomic indicators. Based on the constructed stress scenarios, we conducted stress testing of all systemically important banks, which allowed us to predict the share of overdue debts a year in advance for each bank. To verify the predictive power of the constructed models, we conducted a back-test for each bank, which showed that when predicting the share of overdue debt for 2018, the deviation from the actual values is minimal, which indicates the possibility of using this model in practice. As a result, most banks, in the case of the implementation of any stressful scenario, will increase the overdue debt by the end of 2019, which in turn will affect the increasing credit risk of the entire banking system. Having conducted this study, we confirmed the hypothesis that it is macroeconomic shocks that lead to an increase in credit risk, with the maximum being the effect of such indicators as exchange rate, oil price, GDP growth rate and inflation.