Case studySTRESS TESTING IN ROMANIA

ABC has a long history of delivering challenging projects to customers with project portfolio spanning wide range of areas. One of them was development of a stress testing model for a top 5 Romanian bank.

Bank’s parent was in focus of regulators for a few years since the start of the Greek Government-Debt Crisis caused by the global economic recession in 2008. Therefore, a thorough assessment of bank’s ability to face any potential credit risk including provisions allocation had been expected for some time. The bank, in order to be able to support their provisions allocation methodology, asked ABC to develop a stress test identifying current provisions requirements and estimating future provisions development.

The project was split into four consecutive stages:

1

Health Check

At first, the project team did a thorough health check of bank’s portfolio and processes in order to understand local processes.

2

Model Development

Then, the ABC team in joint cooperation with the local team identified portfolio segments and developed a stress test model framework tailored to match local specifics.

3

Data Cleansing

Once the framework was ready, the ABC team dove into data to get them in a shape usable for model computation.

4

Model computation

Finally, the stress test was computed and validated together with the local team.

The project team decided to closely cooperate on the development and validation with the local team in order to assure transfer of necessary know-how to them since the final stress tests would be presented by the local team themselves.

In the end, the ABC in cooperation with the local team delivered an extensive stress test predicting future losses for the following 5 years. Moreover, the local team excelled when presenting and defending the stress test results on their own in front of the assessment committee, which we consider our major success.