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September 2009 issue
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van Lelyveld
Foglia
Alessandri, Gai, Kapadia, Mora, Puhr
Åsberg Sommar, Shahnazarian
Bernhardsen, Syversten
Duellmann, Erdelmeier
Simons, Rolwes
Breuer, Jandačka, Rheinberger, Summer
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Stress Testing the Enterprise Sector's Bank Debt: A Micro Approach

by Eivind Bernhardsena and Bjørne Dyre Syverstenb

Abstract

This paper describes Norges Bank’s micro stress-testing framework for assessing the Norwegian banking sector’s losses on loans to the nonfinancial enterprise sector. Using projected macro variables and a stock-flow approach, annual financial statements of every firm in Norway are projected five years ahead. The loan loss potential is then assessed using a creditscoring model. We present a backtest of projections, taking the history of macro variables as given. Our results are fairly good using a relatively simple setup, and we conclude that stockflow projections of financial statements can be useful for stress testing banks’ loan portfolios.

JEL Codes: G21, G32, G33, M49.

 
Full article (PDF, 28 pages 513 kb)

 


a Financial Supervisory Authority of Norway
b Norges Bank