Presentation is loading. Please wait.

Presentation is loading. Please wait.

Presented by: Syed Faraz Husain, Group Risk Management, NCB Stress Testing Presented to The Institute of Banking (IOB) Riyadh, 23 rd March 2011.

Similar presentations


Presentation on theme: "Presented by: Syed Faraz Husain, Group Risk Management, NCB Stress Testing Presented to The Institute of Banking (IOB) Riyadh, 23 rd March 2011."— Presentation transcript:

1 Presented by: Syed Faraz Husain, Group Risk Management, NCB Stress Testing Presented to The Institute of Banking (IOB) Riyadh, 23 rd March 2011

2 2 Purpose and Use of Stress Testing  Stress Tests are used to support the statistical tools such as Value-at-Risk (VaR) to gauge the impact of the ‘tail risks’.  Stress Tests are non-statistical tools where risk factors are stressed to assess their impact on the bank. Hence, stress testing complements the VaR / Unexpected Loss methodologies to assess the kind of losses that may occur if the markets are very stressed and start behaving abnormally ('tail risk').  Stress Tests are used by Senior Management and the Board to ensure that the Bank has sufficient Capital to withstand such losses should they ever occur.  Stress Tests serve as an input to test the Risk Appetite of the Bank – e.g. if any particular risk is unwanted and, therefore, should be avoided

3 3 Stressing Models vs. Scenario Analysis Stressing ModelsScenario Analysis Methods o Push factor analysis – A factor or factors are deliberately pushed to extreme and the impact on the portfolio is measured o Maximum loss optimization - Identifies risk factors that have the greatest potential impact on the portfolio and moving to protect against those factors o Worst Case scenario – All risk factors are pushed to their worst cases Challenges o Incorrect inputs and assumptions and user bias o Inaccurately constructed risk models o undue reliance on models Methods o Stylized Scenarios – based on industry standards such as those defined by the Derivatives Policy Group or by Regulators o Actual extreme events – uses past events such as market crash of 1987, technology bubble of 1990 etc. o Hypothetical events – that are based on events that have not occurred but may occur in future Challenges o Inability to measure by-products of major factor movements or include effects of simultaneous adverse movements o User specification of the movements and their correlations

4 4 Developments in Stress Testing & Impact of 2008 Financial Crisis Stress Testing importance has been magnified Stress testing methodologies have been developed and formally documented as a policy In some cases results of past stress tests validated and in other areas assumptions used have been revisited Results of stress tests are now being presented in a more comprehensive manner at the entity level to the Senior Management and the Board Actions are being taken to manage risks highlighted through stress tests Results of Stress testing on capital are being presented and discussed with SAMA as part of the ICAAP process SAMA endorsed the “Principles for sound stress testing practices and supervision” issued by The Basel Committee on Banking Supervision in 2009 Frequency of stress tests and reviewing underlying assumptions increased Public disclosures could be mandated in future by International Financial Reporting Standards or Regulators


Download ppt "Presented by: Syed Faraz Husain, Group Risk Management, NCB Stress Testing Presented to The Institute of Banking (IOB) Riyadh, 23 rd March 2011."

Similar presentations


Ads by Google