CBA suggests preparing three scenarios for stress testing

Business Materials 4 September 2011 14:31

Azerbaijan, Baku, Sept. 4 /Trend, N.Ismayilova/
Azerbaijan's banks have to conduct stress testing at least one time per month in order to ensure operationability of decision-making as required in the Central Bank of Azerbaijan's draft rules on conducting stress testing.
The rules have been prepared taking into consideration the international experience and Azerbaijani Law on Banks, as well as other legislative acts.
Conducting stress testing should be directed to determining the sustainability of the bank's capital to shocks, maximum losses because of shocks, gaps in the bank's activities, assessing various risks and their relationship, as well as determining the dependence of the bank on macroeconomic factors. Depending on the size and complexity of activities, each bank should prepare a corresponding model of conducting stress test.
While conducting stress testing, it needs to prepare "the worst", "very good" and "supposed" scenarios, and separate shocks and criteria should be defined for each scenario.
Stress testing should be conducted under the personal supervision of the bank's management and the emergency plan should be revised in accordance with its results. If necessary, it should be amended.
After each stress testing, a report should be prepared and then submitted to the Supervisory Board.