Organization and methodology of stress testing of banking risks

The paper identifies stress testing as an important tool that helps the NBU and banking institutions effectively manage risks. The importance of stress testing is determined by the possibilities of: assessing the stability of banks, identifying vulnerable places, increasing transparency and trust, preparing for crisis situations, improving policies and procedures. It has been proven that the effective conduct of stress testing allows: to ensure the stability of the banking institution, to identify vulnerabilities, to increase transparency and trust, to prepare for crisis situations, to improve policies and procedures. It was determined that the NBU plays a key role in conducting stress testing, providing supervision of the banking system and determining general approaches to assessing the stability of banks by establishing regulatory requirements, analyzing the results of stress testing, developing policies and recommendations for banks. It is shown that the main aspects of credit risk stress testing are: assessment of the impact on the credit portfolio, analysis of financial indicators, sensitivity to risks, development of preventive measures, capital planning, systematic approach to credit risk monitoring. The banking institution uses the results of stress testing to develop a strategy and business plan, risk management policies and procedures, and business recovery plans. The methodology of stress testing of credit risk, liquidity risk, interest rate risk of the bank book, market risk, and operational risk has been formalized, which should be carried out at least once a quarter. The purpose of stress testing and assumptions for developing stress scenarios for each type of risk are defined. Recommendations for improving the organization of the stress testing process have been developed. A set of measures to improve the mechanism of stress testing of banking activity risks is substantiated: development of unified methods and algorithms of stress testing, harmonization of national approaches with international standards, integration of stress testing into the risk management system, technological support and automation of processes, improvement of personnel qualifications.