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The Vulnerability Trends of the Banking Sector of Bangladesh: A Stress Testing Approach

Author

Listed:
  • Niluthpaul Sarker

    (School of Management, Huazhong University of Science and Technology, Wuhan, Hubei, P. R. China)

  • Shamsun Nahar

    (Department of Accounting and Information Systems, Jagannath University, Dhaka, Bangladesh,)

Abstract

The study investigates the stress test report of the banks to assess the vulnerability of the banking sector as a whole on extreme but plausible shock scenarios. The regulatory pressure and extreme market competition bound the banking sector to assess their risk and show the sensitivity based on hypothetical extreme scenarios. It refers to the stability of the bank in disaster situations so that the economy can withstand negative externality by protecting the preventive measures. It is found that the bank credit is vulnerable and volatile due to higher defaults and more concentration. The mandatory practice of stress test will give better information to the market about the sensitivity of banks that will automatically adjust to the market value of the share. This is one of the techniques by which market gambling can be reduced. The study is emphasized its importance and mandatory practice in the market.

Suggested Citation

  • Niluthpaul Sarker & Shamsun Nahar, 2018. "The Vulnerability Trends of the Banking Sector of Bangladesh: A Stress Testing Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 8(3), pages 75-85.
    • Handle: RePEc:eco:journ1:2018-03-10
    as

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    References listed on IDEAS

    as
    1. Schuermann, Til, 2014. "Stress testing banks," International Journal of Forecasting, Elsevier, vol. 30(3), pages 717-728.
    2. Maria Soledad Martinez Peria & Mr. Giovanni Majnoni & Mr. Matthew T Jones & Mr. Winfrid Blaschke, 2001. "Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and FSAP Experiences," IMF Working Papers 2001/088, International Monetary Fund.
    3. Jan Willem van den End, 2006. "Indicator and boundaries of financial stability," DNB Working Papers 097, Netherlands Central Bank, Research Department.
    4. Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Staff Working Papers 03-14, Bank of Canada.
    5. Bank for International Settlements, 2005. "Stress testing at major financial institutions: survey results and practice," CGFS Papers, Bank for International Settlements, number 24, October –.
    6. Quagliariello,Mario (ed.), 2009. "Stress-testing the Banking System," Cambridge Books, Cambridge University Press, number 9780521767309, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bank Risk; Stress Test; Bangladesh.;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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