Stress Testing on Private Commercial Banks in Bangladesh

Kaniz Habiba Afrin; Md. Ashraful Islam; Md. Nahid Hasan; Md. Tota Miah

doi:doi:10.11648/j.ijebo.20221004.11

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Stress Testing on Private Commercial Banks in Bangladesh

Kaniz Habiba Afrin, Md. Ashraful Islam, Md. Nahid Hasan, Md. Tota Miah

Published in International Journal of Economic Behavior and Organization (Volume 10, Issue 4)

Received: 28 July 2022 Accepted: 25 August 2022 Published: 11 October 2022

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Abstract

One of the most reliable and well-liked methods for signaling bank management of negative repercussions associated to possible threats is stress testing. It also depicts how much capital adequacy ratio (CAR) may be required to absorb losses if any substantial shocks occur. As per Bangladesh Bank standards, researchers conducted load testing on 10 Bangladeshi private commercial banks' non-performing loans (NPL), non-performing loans in two key sectors, equity price risk, liquidity shocks, and interest rate shocks in this article. Data from the annual reports of the chosen banks for the years 2016, 2017, and 2018 were used in this analysis. According to the study, all 10 banks in the years 2016, 2017, and 2018 need more capital due to the indicator NPL. In 2016, 2017, and 2018, Prime Bank was able to withstand NPL shocks in two crucial industries. Bank Asia and Jamuna bank were also able to do so in those years. In 2016, 2017, and 2018, four out of ten banks were able to surpass the shock threshold when it comes to equity price risk. Under the liquidity indicator, none of them can sustain operations in three years without additional financing. Finally, out of 10 banks, six banks do not need any more capital when the indicator interest rate is taken into account. The study also highlights certain extra CAR that the banks might enhance to withstand shocks. Finally, several intriguing study implications are demonstrated in this paper, which may be useful to senior management, decision-makers, depositors, owners, and other bank stakeholders.

Published in	International Journal of Economic Behavior and Organization (Volume 10, Issue 4)
DOI	10.11648/j.ijebo.20221004.11
Page(s)	89-99
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Stress Test, Credit Risk, Non-performing Loan, Equity Price Risk, Liquidity Shock, Interest Rate Shock

References

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[2]	Jones, Mathew, Hilbers, Paul. and Slack, Graham 2004 'Stress Testing Financial System', Working Paper, wp/04/127, IMF, Pp. 1-11.
[3]	Martin CIHAK, 2005. ‘Stress Testing of Banking Systems’. Czech Journal of economics and finance, Vol. 55, Pp. 1-3.
[4]	Zlatuse Komarkova, Marcela Gronychova. 2018. Models for Stress Testing in the Insurance Sector. CNB research and policy notes 2. CNB CZECH NATIONAL BANK. Pp. 22-23.
[5]	Marina moretti, Stephanie stolz, Mark Swinburne, 2008. Stress Testing at the IMF. IMF working paper. Pp. 10-12.
[6]	Winfird blaschke, Mathew T. Jones, Givoanni Majnoni, Soledad Martinez peria, 2001. Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and FSAP Experiences. IMF working paper. Pp. 12-27.
[7]	Marco sorge, 2004, Stress-testing financial systems: an overview of current methodologies. Bank for International Settlements (BIS) working paper, Pp. 33.
[8]	Md. Aktar kamal and Mohd. Mohsin, 2017, Stress Testing to Simulate the Shocks of Banks: A Study on some Banks in Bangladesh.iosrjournals.org Pp. 3-4.
[9]	2018. Guidlines on Stress Testing for Non-Banking Financial Institution. Bangladesh Bank.
[10]	Atif ellahie, 2013, capital market consequences of EU Bank stress test.
[11]	Renato Filosa 2007, Stress testing of the stability of the Italian banking system: a VAR approach. Research project supported by the Ministero dell’ Universita e della Ricerca (M.I.U.R.) Pp. 2-5.
[12]	Martin Cihak, 2007, ‘Introduction to Applied stress testing’ IMF working paper, Pp. 56-61.
[13]	2007, European central bank, risk measurement and systemic risk.
[14]	Jan Willem van den end, Marco Hoeberichts and Mostafa Tabbae, 2006, Modelling scenario analysis and macro stress-testing. De Nederlandsche Bank. Pp. 4-6.
[15]	Cihak M., Hermanek J. (2005): Stress testing the Czech Banking System: Where Are We Going, CNB Research and Policy Note, No. 2/2005.

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APA Style

Kaniz Habiba Afrin, Md. Ashraful Islam, Md. Nahid Hasan, Md. Tota Miah. (2022). Stress Testing on Private Commercial Banks in Bangladesh. International Journal of Economic Behavior and Organization, 10(4), 89-99. https://doi.org/10.11648/j.ijebo.20221004.11

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ACS Style

Kaniz Habiba Afrin; Md. Ashraful Islam; Md. Nahid Hasan; Md. Tota Miah. Stress Testing on Private Commercial Banks in Bangladesh. Int. J. Econ. Behav. Organ. 2022, 10(4), 89-99. doi: 10.11648/j.ijebo.20221004.11

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AMA Style

Kaniz Habiba Afrin, Md. Ashraful Islam, Md. Nahid Hasan, Md. Tota Miah. Stress Testing on Private Commercial Banks in Bangladesh. Int J Econ Behav Organ. 2022;10(4):89-99. doi: 10.11648/j.ijebo.20221004.11

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@article{10.11648/j.ijebo.20221004.11,
  author = {Kaniz Habiba Afrin and Md. Ashraful Islam and Md. Nahid Hasan and Md. Tota Miah},
  title = {Stress Testing on Private Commercial Banks in Bangladesh},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {10},
  number = {4},
  pages = {89-99},
  doi = {10.11648/j.ijebo.20221004.11},
  url = {https://doi.org/10.11648/j.ijebo.20221004.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20221004.11},
  abstract = {One of the most reliable and well-liked methods for signaling bank management of negative repercussions associated to possible threats is stress testing. It also depicts how much capital adequacy ratio (CAR) may be required to absorb losses if any substantial shocks occur. As per Bangladesh Bank standards, researchers conducted load testing on 10 Bangladeshi private commercial banks' non-performing loans (NPL), non-performing loans in two key sectors, equity price risk, liquidity shocks, and interest rate shocks in this article. Data from the annual reports of the chosen banks for the years 2016, 2017, and 2018 were used in this analysis. According to the study, all 10 banks in the years 2016, 2017, and 2018 need more capital due to the indicator NPL. In 2016, 2017, and 2018, Prime Bank was able to withstand NPL shocks in two crucial industries. Bank Asia and Jamuna bank were also able to do so in those years. In 2016, 2017, and 2018, four out of ten banks were able to surpass the shock threshold when it comes to equity price risk. Under the liquidity indicator, none of them can sustain operations in three years without additional financing. Finally, out of 10 banks, six banks do not need any more capital when the indicator interest rate is taken into account. The study also highlights certain extra CAR that the banks might enhance to withstand shocks. Finally, several intriguing study implications are demonstrated in this paper, which may be useful to senior management, decision-makers, depositors, owners, and other bank stakeholders.},
 year = {2022}
}

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TY - JOUR
T1 - Stress Testing on Private Commercial Banks in Bangladesh
AU - Kaniz Habiba Afrin
AU - Md. Ashraful Islam
AU - Md. Nahid Hasan
AU - Md. Tota Miah
Y1 - 2022/10/11
PY - 2022
N1 - https://doi.org/10.11648/j.ijebo.20221004.11
DO - 10.11648/j.ijebo.20221004.11
T2 - International Journal of Economic Behavior and Organization
JF - International Journal of Economic Behavior and Organization
JO - International Journal of Economic Behavior and Organization
SP - 89
EP - 99
PB - Science Publishing Group
SN - 2328-7616
UR - https://doi.org/10.11648/j.ijebo.20221004.11
AB - One of the most reliable and well-liked methods for signaling bank management of negative repercussions associated to possible threats is stress testing. It also depicts how much capital adequacy ratio (CAR) may be required to absorb losses if any substantial shocks occur. As per Bangladesh Bank standards, researchers conducted load testing on 10 Bangladeshi private commercial banks' non-performing loans (NPL), non-performing loans in two key sectors, equity price risk, liquidity shocks, and interest rate shocks in this article. Data from the annual reports of the chosen banks for the years 2016, 2017, and 2018 were used in this analysis. According to the study, all 10 banks in the years 2016, 2017, and 2018 need more capital due to the indicator NPL. In 2016, 2017, and 2018, Prime Bank was able to withstand NPL shocks in two crucial industries. Bank Asia and Jamuna bank were also able to do so in those years. In 2016, 2017, and 2018, four out of ten banks were able to surpass the shock threshold when it comes to equity price risk. Under the liquidity indicator, none of them can sustain operations in three years without additional financing. Finally, out of 10 banks, six banks do not need any more capital when the indicator interest rate is taken into account. The study also highlights certain extra CAR that the banks might enhance to withstand shocks. Finally, several intriguing study implications are demonstrated in this paper, which may be useful to senior management, decision-makers, depositors, owners, and other bank stakeholders.
VL - 10
IS - 4
ER -

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Author Information

Kaniz Habiba Afrin

Department of Business Administration, Varendra University, Rajshahi, Bangladesh
Md. Ashraful Islam

Department of Business Administration, Varendra University, Rajshahi, Bangladesh
Md. Nahid Hasan

Department of Business Administration, Varendra University, Rajshahi, Bangladesh
Md. Tota Miah

Department of Business Administration, Varendra University, Rajshahi, Bangladesh

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APA Style

Kaniz Habiba Afrin, Md. Ashraful Islam, Md. Nahid Hasan, Md. Tota Miah. (2022). Stress Testing on Private Commercial Banks in Bangladesh. International Journal of Economic Behavior and Organization, 10(4), 89-99. https://doi.org/10.11648/j.ijebo.20221004.11

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ACS Style

Kaniz Habiba Afrin; Md. Ashraful Islam; Md. Nahid Hasan; Md. Tota Miah. Stress Testing on Private Commercial Banks in Bangladesh. Int. J. Econ. Behav. Organ. 2022, 10(4), 89-99. doi: 10.11648/j.ijebo.20221004.11

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AMA Style

Kaniz Habiba Afrin, Md. Ashraful Islam, Md. Nahid Hasan, Md. Tota Miah. Stress Testing on Private Commercial Banks in Bangladesh. Int J Econ Behav Organ. 2022;10(4):89-99. doi: 10.11648/j.ijebo.20221004.11

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@article{10.11648/j.ijebo.20221004.11,
  author = {Kaniz Habiba Afrin and Md. Ashraful Islam and Md. Nahid Hasan and Md. Tota Miah},
  title = {Stress Testing on Private Commercial Banks in Bangladesh},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {10},
  number = {4},
  pages = {89-99},
  doi = {10.11648/j.ijebo.20221004.11},
  url = {https://doi.org/10.11648/j.ijebo.20221004.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20221004.11},
  abstract = {One of the most reliable and well-liked methods for signaling bank management of negative repercussions associated to possible threats is stress testing. It also depicts how much capital adequacy ratio (CAR) may be required to absorb losses if any substantial shocks occur. As per Bangladesh Bank standards, researchers conducted load testing on 10 Bangladeshi private commercial banks' non-performing loans (NPL), non-performing loans in two key sectors, equity price risk, liquidity shocks, and interest rate shocks in this article. Data from the annual reports of the chosen banks for the years 2016, 2017, and 2018 were used in this analysis. According to the study, all 10 banks in the years 2016, 2017, and 2018 need more capital due to the indicator NPL. In 2016, 2017, and 2018, Prime Bank was able to withstand NPL shocks in two crucial industries. Bank Asia and Jamuna bank were also able to do so in those years. In 2016, 2017, and 2018, four out of ten banks were able to surpass the shock threshold when it comes to equity price risk. Under the liquidity indicator, none of them can sustain operations in three years without additional financing. Finally, out of 10 banks, six banks do not need any more capital when the indicator interest rate is taken into account. The study also highlights certain extra CAR that the banks might enhance to withstand shocks. Finally, several intriguing study implications are demonstrated in this paper, which may be useful to senior management, decision-makers, depositors, owners, and other bank stakeholders.},
 year = {2022}
}

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