Thursday, 23/07/2015 13:41

Will Vietnamese banks pass the stress test?

The Vietnam Institute for Economic and Policy Research (VEPR) has announced unsatisfactory results on a stress test it conducted on 13 Vietnamese banks which hold 68.5 percent of the total assets of the banking system.

How will Vietnamese banks perform if they meet unexpected risks was the topic of discussion at a workshop where VEPR released its 2015 annual report on Vietnam’s economy.

In order to find the answer to the question, a VEPR research team conducted a stress test on 13 selected commercial banks.

Bank stress testing determines whether a bank is capable of withstanding the impact of adverse developments.

The testing is carried out to find the weak points of commercial banks, so that necessary measures can be taken soon to fix the problems.

The VEPR’s stress testing was conducted on two assumptions about the unexpected happenings in the national economy in 2015.

The risks put into the test included credit risk, exchange rate, interest rate and securities price risks.

The research team built the first scenario based on VAR model (value at risk) to predict the variables of GDP growth rate, inflation rate, lending interest rate and nominal exchange rate with quarterly indexes (from the first quarter of 1996 to the fourth quarter of 2014), and ARIMA (Autoregressive integrated moving average) model to predict the VN Index with monthly figures.

The researchers then selected certain actions with a probability of one percent in the two models’ probability range. The selection aims to ensure that the specific actions are likely to happen.

With the second scenario, the research team analyzed the macroeconomic variables in the period from the first quarter of 1996 to the fourth quarter of 2014.

The moments selected for analysis were the ones when the GDP growth rates were the lowest, while the inflation rates, lending interest rates and the dong depreciation were the highest.

As for the Vietnamese stock index – VN Index – the researchers focused on the moment when the index saw the sharpest decrease, while calculating the index for 2015 with the decrease and 2014’s index.

The VEPR’s team found that if nothing abnormal happens, the CAR (capital adequacy ratio) of the banks will be high, and higher than the minimum required CAR at 9 percent.

However, if the first scenario happens, only four out of 13 banks would be able to satisfy the minimum required CAR of 9 percent, i.e. they have CAR>9%.

If the second scenario happens, no one would be able to satisfy the requirement.

If this happens, the State Bank would have to pump more capital into the banks to avoid the possible collapse of the banking system.

vietnamnet
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