Importance of balance sheet composition in stress test estimates

Authors

  • Salvador Climent-Serrano University of Valencia
  • Elisabeth Bustos-Contell University of Valencia.
  • Gregorio Labatut-Serer University of Valencia

DOI:

https://doi.org/10.30564/jesr.v1i1.310

Abstract

The stress tests are based on macroeconomic variables for the estimations of the results. However, there are other factors that may influence them. This paper studies the influence of the balance sheet structure in the NPL and the loss caused by the NPL using econometric models. The objective  is to research  how they affect the aggregates in the balance sheet to the delay in payment  and the the provision for impairment, distinguishing these effects according to the economic cycle, so that can be applied to the stress test. The results show  that the Balance sheet structure is important in delinquency and losses caused by it, especially in respect of stockholders’ funds, ECB resources and the account Non-current assets held for sale. It also highlights the influence of the economic cycle and the different behavior of the NPL  and the losses due to default with respect to the same explanatory variables.

Keywords:

NPLs; Impairment losses on financial assets; economic cycle

References

[1] Gerhardt, M., & Vander Vennet, R. (2016). European bank stress test and sovereign exposures. Applied Economics Letters, Published online: 20 Oct 2016 1-5. http://dx.doi.org/10.1080/13504851.2016.1243208

[2] Climent-Serrano, S. (2016) Stress test based on Oliver Wyman in Bank of Spain: an evaluation. Banks and Bank Systems, 11 (3), 64-72. doi:http://dx.doi.org/10.21511/bbs.11(3).2016.07

[3] Quijano, M. (2014). Information asymmetry in US banks and the 2009 bank stress test. Economics Letters, 123(2), 203-205. http://dx.doi.org/10.1016/j.econlet.2014.02.014.

[4] Wang, M.H y Huang, T.H (2007). A study on the persistence of Farrell’s efficiency measure under a dynamic framework. European Journal of Operational Research. 180 (2007) 1302–1316. doi:10.1016/j.ejor.2006.04.043

[5] EBA (2016).2016 EU‐Wide Stress Test – Methodological Note. http://www.eba.europa.eu/documents/10180/1259315/2016+EU-wide+stress+test-Methodological+note.pdf

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Issue

Vol. 1 , Iss. 1 (October 2018)

Article Type

Articles

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