Framework for conducting credit risk stress tests in banking supervision: International experience and lessons for Vietnam

Abstract

Stress testing is one of the key supervisory tools used by banking sector regulators to assess the stability of the banking system, with credit risk being the most critical risk applied. Through a method of synthesis and text analysis, the study analyzes the process involved in the supervisory credit risk stress test. Accordingly, the author breaks down the framework for conducting credit risk stress tests into the following steps: (i) constructing macroeconomic scenarios, (ii) measuring the impact of these scenarios on credit risk, (iii) assessing the impact on banks, and (iv) the response of supervisory authorities. In addition, the author analyzes the experience of conducting supervisory credit risk stress test in Europe, the United Kingdom, and various Asian countries up to 2023 and then draws lessons for Vietnam