The Research On The Credit Risk Of Commercial Bank Based On The Macro-stress Testing Method

With the rapid development of the Chinese financial innovation and financial globalization, the commercial Banks are facing profound changes in the external economic environment, macroeconomic policies and market mechanism. Correspondingly, risks of the bank are becoming more and more complex, and the possibility of financial crisis is increasing day by day. The financial crisis that happened in history makes people realize that risk management under normal market conditions is far from enough, we also need to take into account of the potential impact of extreme abnormal market conditions on the bank. At present, how to prevent and deal with the extreme risk has become an important research topic in the field of commercial banks’ risk management. The macro-stress testing is an important technical means of risk management in modern commercial bank, which access the possible loses of commercial banks to extreme but plausible adverse macroeconomic shocks, and then make a reasonable evaluation and judgment on the stress bearing capacity and the stability of the commercial banks.In this paper, the author took the credit risk of commercial bank as the object of macro-stress testing, chose the commercial banks’ Non-Performing Loan Rate(NPL) as the stress bearing index and the macroeconomic factors that had a significant impact on the credit risk of commercial banks as the stress factors, and then designed the macro-stress testing model system of credit risk according to the Credit Portfolio View Theory. In the process of parameter estimation, the Seemingly Unrelated Regression method was used to estimate the whole model system, and then applied the Monte Carlo stochastic simulation method to get the distribution map of the commercial banks’ Non-Performing Loan Rate under different stress scenarios. Finally, analyzed the stress bearing capacity of the commercial bank using the simulation results that belong to different stress scenarios and the impulse response function and variance decomposition of VAR model were used to analyze the dynamic impact of the macroeconomic factors on the credit risk of commercial banks.The empirical results showed that the Domestic Product Growth Rate, Consumer Price Index, Generalized Money Supply Growth Rate and the one-year Loan Interest Rate were significant macroeconomic factors that affected the credit risk of commercial banks, and the growth rate of GDP and Generalized Money Supply Growth Rate had negative impacts on commercial bank’s Non-Performing Loan ratio, while the Consumer Price Index and the one-year Loan Interest Rate had positive impacts on commercial bank’s Non-Performing Loan ratio. From the perspective of the influence degree, the results of the impulse response function and the variance decomposition showed that the exogenous shock of macroeconomic variables such as the Domestic Product Growth Rate and the one-year Loan Interest Rate had big impacts on Non-Performing Loan Ratio, while the impacts of adverse changes of Consumer Price Index and Generalized Money Supply Growth Rate on Non-Performing Loan Ratio was relatively small.When we set mild impact, moderate impact, and severe impact three kinds of initial stress scenario to variables of the Domestic Product Growth Rate and the one-year Loan Interest Rate, compared with the baseline scenario, with the gradually increasing of the magnitude of adverse macroeconomic shocks, the simulation frequency distribution map of commercial bank’s Non-Performing Loan Ratio tended to move to the right side, and shape of the frequency distribution map of NPL became more and more “Chunky”, values of NPL became more and more fragmented, which indicated that the frequency of high Non-Performing Loan Ratio increase and value of Non-Performing Loan Ratio had a tendency of further increase, commercial banks were facing much bigger credit risks.However, through analyzing the relationship between the potential losses of commercial banks under different stress scenario and the loan loss reserve and economic capital, we found that the overall stress bearing capacity of Chinese commercial banks was relatively strong, even in the face of adverse stress scenario on the extreme downside of macroeconomic and loan interest rate rise, the commercial banks still had enough capital to make up for the losses caused by credit risk.