Stress testing of Vietnamese commercial banks using var model, panel regression and simulation

Abstract

This thesis determines to be concerned with stress testing at the macro level with changes in the economic situations .In recent years, especially after the global financial crisis in 2008, stress testing has been more often emphasized in various scientific research forums and seminars on risk management. Vietnam is a developing country with limited experience in risk management. For years, the commercial banking system in Vietnam faced with the Non Performing Loan ratio rising from large corporations. One of the challenges that Vietnam's banking system faces today is the need for a study to stress test the tolerance level of credit risk. Based on scenario analysis, this thesis will study the interaction of macro economic variables on the credit risk of Vietnamese commercial banks and we found that there is a close relationship between GDP and NPL ratio through VAR model and Regression Model. The thesis also uses Monte Carlo simulation to calculate maximum credit loss under scenarios. These losses from bad debts could threaten the stability of the banking system.