The Research On Macro-stress Testing Of Credit Risk To China’s Commercial Bank

The outbreak of the sub-prime crisis caused great shock and damage tointernational financial order. In order to maintain the stability of the financial system，macro-prudential supervision must be strengthened and systemic risk should be guardagainst. Stress testing which is an important part of the systematic risk managementhas been paid extensive attention from scholars in recent years. The goal of presentresearch was to prevent the outbreak of systemic risk and, establish a risk warning byexploring Chinese banking system against systemic risks under extreme stressscenarios. Credit risk was the main risk because of its information asymmetry andinfectious in China. So this paper was tried to build a credit risk stress testing system.Firstly, a multiple linear regression equation with selected macroeconomicvariables and economic indicators was established by using principal componentregression methods. The credit risk stress test model was established by using theregression equation and the selected China-QEM models. The model applicationresults indicated that the non-performing loan ratio will increase with increasing ofCPI value, budgeted income, real effective exchange rate and one-year benchmarklending interest rates; the non-performing loan will decline with the increasing ofGDP, investment in fixed assets and M1caliber money supply growth rate. The modelwas applied to China’s banking system, and the results showed that GDP and interestrate adjustment had great impact on China’s banking system.Then, An Research on the Measurement of the Systematic Risk Based on theRisk of contagion was tested. Contagion effects analyzed by matrix method can workwell in our country. In order to measure the potential losses in the banking systemfrom a global perspective, this paper constructed a risk of contagion inverse matrixthat was taken from the Leontief Inverse Matrix of input-output analysis to improvethe traditional matrix method and build a model for measure the contagion effects dueto interbank exposures.Then, the date of the banking system of China was used toperform the simulations. The results indicated that contagion could destroy a sizableproportion of the banking system in terms of total assets, the size of the core capitaland the loss rate were the key elements whether the bank can stand the risk or not. Inorder to ensure that banks are better able to withstand systemic risk, Supervisorsshould pay attention to macro or micro prudential and strengthen international cooperation on supervision.Finally, the factors that restrict the applications of credit risk stress test wereanalyzed,and some suggestions were made.Then, the lack of this paper was analyzedand proposed the future developmental direction of credit risk stress test.