Naslov
Bank System Vulnerability to Macroeconomic Shocks in Croatia

Autori
Cota, Boris ; Erjavec, Nataša ; Bogdan, Željko

Vrsta, podvrsta i kategorija rada
Sažeci sa skupova, sažetak, znanstveni

Izvornik
EBES 2009 Conference Program and Abstract Book / Hakan Danis - Istanbul : Eurasia Business and Economics Society (EBES), 2009, 117-117

Skup
EBES 2009 Conference

Mjesto i datum
Istanbul, Turska, 01.06.2009. - 02.06.2009

Vrsta sudjelovanja
Predavanje

Vrsta recenzije
Međunarodna recenzija

Ključne riječi
stress testing; banking; VAR; historical decomposition

Sažetak
Many macroeconomic researches have focused on assessing the strengths and vulnerabilities of financial systems since financial crises in the 1990s and 2000s. Nowadays, macroeconomic stress tests have become an important tool for financial stability analysis in many central banks. The most extensive appliance of macroeconomic stress testing was provided by the IMF as a part of its Financial System Assessment Programs. In addition, in our research we try to find out how the Croatian banking sector reacts to macroeconomic shocks. We present an application of macro stress testing to the Croatian banking system. Following the basic assumption that the deterioration of macroeconomic environment, which makes the single banks fail and cause chain reactions, will be expressed in a general worsening of balance sheet of the aggregated banking sector, we use measures that are based on balance sheet items. The question that arises is which items will indicate the best possible strengths or vulnerabilities of financial sector. Measures that are mostly used in the empirical studies are non-performing loans, interest margins for outstanding loans, various liquidity ratios etc. In order to explore the sensitivity of Croatian banking system to selected macro economic shocks we employed two measures for describing the soundness of the aggregated bank sector in Croatia: write-offs and return on equity. The first one primarily provides a measure for credit risk and the second one implies a more general approach. Return on equity can display credit risk as well as market risk, which refers to a change in asset values owing to changes in market prices. The empirical analysis is based on two VAR models. The first VAR is defined with variable write-offs as a banking variable and the second one with return on equity. Both models are estimated using quarterly data covering the period from 1991/Q1-to 2008/Q3. The analysis of impulse response functions shows that both variables, the write-offs and return on equity, increase following an unexpected adverse shocks to the growth rate of industrial production. An unexpected increase in inflation as well as in the short-term interest rate increase write-offs and returns on equity. The variance and historical decompositions confirm the obtained results.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

POVEZANOST RADA