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The Microprudential Stress Testing For Banking System. A Study Case On Algerian Private Bank, Using Accounting Approach

Author

Listed:
  • BOUCHETARA, Mehdi

    (Higher National School of Management, Kolea, Algeria.)

  • EYIH, Sidi

    (Cheikh Anta Diop University of Dakar, Dakar, Senegal)

  • HADJ SLIMANE KHEROUA, Hinde

    (Faculty of Economics, Business Studies and Management Sciences, University of Tlemcen, Tlemcen, Algeria)

Abstract

The aim of this article is to highlight the importance and effectiveness of stress testing as part of microprudential policy. We focus on microprudential stress testing to assess financial stability, the resilience and solvency of one important private bank in Algeria in the face of liquidity risk. Our empirical analysis adopts a bottom-up approach based on an accounting method. It studies the relationship between the bank solvency ratio (ratio cook) and bank portfolios, such as loans to the construction, trade, industry, and automotive sectors. Microeconomic stress tests assess the credit risk of a bank's loan portfolio by bottom-up accounting approach, applying eleven pessimistic and plausible multi-variable scenarios with potential risks. The tests introduce several types of microeconomic shocks into the scenarios, which are designed to replicate those that occurred during the global financial crisis. The tests results show that this private bank is highly resistant to liquidity risk, despite significant losses on its investment portfolio. The stress tests prove once again, and especially after the 2008 financial crisis, that they are indispensable tools in the management of banking risks and against systemic risks.

Suggested Citation

  • BOUCHETARA, Mehdi & EYIH, Sidi & HADJ SLIMANE KHEROUA, Hinde, 2021. "The Microprudential Stress Testing For Banking System. A Study Case On Algerian Private Bank, Using Accounting Approach," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 25(4), pages 34-70, December.
    • Handle: RePEc:vls:finstu:v:25:y:2021:i:4:p:34-70
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    References listed on IDEAS

    as
    1. Małgorzata Olszak & Iwona Kowalska, 2017. "Macro- and Microprudential Regulations and Their Effects on Procyclicality of Solvency and Liquidity Risk," Springer Proceedings in Business and Economics, in: Krzysztof Jajuga & Lucjan T. Orlowski & Karsten Staehr (ed.), Contemporary Trends and Challenges in Finance, pages 165-180, Springer.
    2. Pavel Kapinos & Oscar A. Mitnik, 2016. "A Top-down Approach to Stress-testing Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(2), pages 229-264, June.
    3. Azamat Abdymomunov & Filippo Curti, 2020. "Quantifying and Stress Testing Operational Risk with Peer Banks’ Data," Journal of Financial Services Research, Springer;Western Finance Association, vol. 57(3), pages 287-313, June.
    4. Jacek Osinski & Katharine Seal & Mr. Lex Hoogduin, 2013. "Macroprudential and Microprudential Policies: Toward Cohabitation," IMF Staff Discussion Notes 2013/005, International Monetary Fund.
    5. Martin v. & Tavolaro S. & Viol S., 2013. "Stress tests sur le système bancaire et les organismes d’assurance en France," Analyse et synthèse 11, Banque de France.
    6. Jacek Osinski & Katharine Seal & Lex Hoogduin, 2013. "Macroprudential and Microprudential Policies; Toward Cohabitation," IMF Staff Discussion Notes 13/5, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    microprudential policy; stress test; liquidity risk; solvency. Pages: 34-70;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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