Stress tests can satisfy a range of policy objectives and ensure banks are adequately resilient to common economic shocks or specific financial risks. Though the growing body of literature on stress testing, the existing studies have usually focused on developed countries who have relatively stable macroeconomic indicator when compared developing countries. Therefore, this thesis aims to present a macroeconomic credit risk model that explicitly links a set of selected macroeconomic factors including gross domestic product, inflation, lending interest rates and exchange rate to banking non-preforming loans using evidence from the Egyptian banking sector over the time period from 2011 to 2020. We estimate a vector autoregression (VAR) model to analyze and discuss the effects of a variety of adverse macroeconomic scenarios on the Egyptian banking sector non-preforming loans. To the best of our knowledge, this is the first study to conduct an aggregate stress test and simulate the banking non-preforming loans under various scenarios concerning macroeconomic shocks for the banking system in Egypt using a vector autoregression model. The model in this thesis could be of considerable use to policymakers and supervisory authorities.
School of Business
MA in Economics
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(2022).Macroeconomic Shocks and Credit Risk Stress Testing: Evidence from The Egyptian Banking Sector [Master's Thesis, the American University in Cairo]. AUC Knowledge Fountain.
ElGaliy, Noha. Macroeconomic Shocks and Credit Risk Stress Testing: Evidence from The Egyptian Banking Sector. 2022. American University in Cairo, Master's Thesis. AUC Knowledge Fountain.