- June 7, 2016
- Posted by: admin
- Category: Financial Sector Management
By Dércio Eunísio Mutimucuio
February 2015
The study reviews the stress testing practices of some selected MEFMI member countries and the existing literature on credit risk determinants to put forward areas of improvement to the current micro-prudential stress testing framework of the Banco de Moçambique. The study also suggests a methodological approach to link a credit quality variable used in the micro-prudential stress testing framework with the macroeconomic environment. With regard to the former, the study found that the currently available dataset in the Banco de Moçambique does allow for the adoption of interest rate risk stress tests (using maturity gap analysis to measure NII exposures to interest rate risk, and duration to assess the impact of interest rate changes on the trading book), combined scenarios to assess the resilience of banks to multiple instantaneous shocks, and the inclusion of local regulation requirements to increase plausibility of the simulation exercises.
The study found that the limited span of data series of NPL ratio – used as a proxy for probability of default – constrain the extent to which macro-to-micro stress tests can be implemented because no full economic cycle is present. Therefore, a proper identification of macroeconomic and bank specific factors that affect credit quality in Mozambique is crucial for using the proposed methodological approach that combines the forward-looking macroeconomic perspective, a focus on both the individual banks and the banking system as whole, and a uniform approach to the assessment of risk exposures across banking institutions.