MACROPRUDENTIAL STRESS-TESTING THE INDONESIAN BANKING SYSTEM USING THE CREDIT RISK MODEL

  • Shilvia Kurniawati Institut Teknologi Bandung
  • Deddy Priatmodjo Koesrindartoto Institut Teknologi Bandung
Keywords: Stress test, Credit risk, Macroprudential supervision

Abstract

This study implements a macroprudential stress test and develops the Economic Risk Weighted-Capital Adequacy Ratio (ERW-CAR) to evaluate the resilience of the Indonesian banking sector. The results show that the historical and one-year ahead predicted ERW-CARs are currently three percent lower than the Indonesia regulatory CAR, and continue to decrease by nearly two percent following an exchange rate shock. However, the capital adequacy requirement stands above the eight percent threshold and the banks are still able to optimize their capital allocation.

Downloads

Download data is not yet available.

References

Alessandri, P., Gai, P., Kapadia, S., Mora, N., and Puhr, C. (2008). A Framework for Quantifying Systemic Stability, 1–46.

Allmen, U. E. von, and Hamann, J. (2017). Indonesia: Financial System Stability Assessment--Press Release and Statement by the Executive Director for Indonesia.

Altman, E. I., Resti, A., and Sironi, A. (2002). The Link between Default and Recovery Rates : Effects on the Procyclicality of Regulatory Capital Ratios. BIS Working Papers, 113.

BIS. (2006). Results of the fifth Quantitative Impact Study (QIS 5). Basel Committee on Banking Supervision.

Buncic, D., and Melecky, M. (2013). Macroprudential Stress Testing of Credit risk: A Practical Approach for Policy Makers. Journal of Financial Stability, 9, 347–370. https://doi.org/10.1016/j.jfs.2012.11.003

Castrén, O., Dées, S., and Zaher, F. (2008). Global Macro-Financial Shocks and Expected Default Frequencies in the Euro Area. ECB Working Paper Series No. 875, 1–42.

Cihák, M. (2007). Introduction to Applied Stress Testing. IMF Working Papers, 07, 1. https://doi.org/10.5089/9781451866230.001

Coletti, D., Lalonde, R., Misina, M., Muir, D., and St-amant, P. (2008). Bank of Canada Participation in the 2007 FSAP Macro Stress-Testing Exercise. Financial System Review, 51–59.

Fiori, R., Foglia, A., and Iannotti, S. (2009). Beyond Macroeconomic Risk: the Role of Contagion in the Italian Corporate Default Correlation. Centre for Applied Research in Finance Working Paper, 91, 399–404.

Foglia, A. (2009). Stress Testing Credit Risk: A Survey of Authorities’ Approaches. Ssrn, 9–45. https://doi.org/10.2139/ssrn.1396243

GubernurBankIndonesia. (2005). Peraturan Bank Indonesia Nomor: 7/2/PBI/2005 Tentang Penilaian Kualitas Aktiva Bank Umum. Retrieved from www.bi.go.id

Indra. (2018). Macro Stress Test Model Risiko Kredit : Studi Empiris Perbankan Konvensional dan Syariah di Indonesia. Jurnal Ekonomi Dan Kebijakan Publik, 9, 113–129.

Jimenez, G., & Saurina, J. (2006). Credit Cycles, Credit Risk, and Prudential Regulation. International Journal of Central Banking, 2, 65–98. https://doi.org/10.1227/01.NEU.0000349921.14519.2A

Lehmann, H., and Manz, M. (2006). The Exposure of Swiss Banks to Macroeconomic Shocks – an Empirical Investigation. Swiss National Bank Working Papers,(April).

Melecky, M., and Podpiera, A. M. (2012). Macroprudential Stress-Testing Practices of Central Banks in Central and Southeastern Europe: Comparison and Challenges Ahead. Emerging Markets Finance and Trade, 48, 118–134. https://doi.org/10.2753/REE1540-496X480407

Newey, W. K., and West, K. D. (1987). A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix. Econometrica, 55, 703–708.

Onder, S., Damar, B., and Hekimoglu, A. A. (2016). Macro Stress Testing and an Application on Turkish Banking Sector1. Procedia Economics and Finance, 38, 17–37. https://doi.org/10.1016/S2212-5671(16)30173-3

Otoritas Jasa Keuangan. (2016a). Peraturan Otoritas Jasa Keuangan Nomor 6/POJK.03/2016 Tentang Kegiatan Usaha dan Jaringan Kantor Berdasarkan Modal Inti Bank.

Otoritas Jasa Keuangan. (2016b). Siaran pers: Indonesia Siap Laksanakan Program Asesmen Sektor Keuangan. Retrieved from www.ojk.go.id

Published
2020-02-29
How to Cite
Kurniawati, S., & Koesrindartoto, D. (2020). MACROPRUDENTIAL STRESS-TESTING THE INDONESIAN BANKING SYSTEM USING THE CREDIT RISK MODEL. Buletin Ekonomi Moneter Dan Perbankan, 23(1), 121 - 138. https://doi.org/10.21098/bemp.v23i1.1093
Section
Articles