The Impact of House’s Recession on Banks’ Default Rate In The Framework of Stress Testing

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Faraji, Sara | 2012

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 43057 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Nili, Farhad
Abstract:
The aim of this paper is to perform macro stress test for one of Iran’s private banks using bank’s quarterly data from Q-4 1383 to Q-4 1389. To do this, the relation of bank’s default rate with macroeconomic indicators like house prices and the growth rate of value added of services; as macroeconomic risk factors; was investigated by a linear model. Results show that the bank’s default rate has a negative relation with both risk factors.Stress testing, using monte carlo simulation; shows that reverse shocks to both house prices and the growth rate of value added of services leads to severe increase in bank’s default rate; so that with decrease of both house prices to 4 million rials at every متر مربع and reduction in the growth rate of services value added to 2 percentage, bank’s default rate increases to 28.37 and bank’s credit losses reaches 57.5 per bank’s capital
Keywords:
Housing Price ; Macro Stress Test ; Default Rate ; Credit Losses ; Value Added of Services ; Macroeconomic Risk Factors