Stress tests will be conducted on various types of risks in banks operating in Azerbaijan and local branches of foreign banks.
Medianews.az reports that, according to the information obtained by Trend, during the evaluation of the stress test model, various questions will be asked to the bank employees responsible for the development and implementation of the stress test program.
Responsible employees should be prepared to answer these questions.
Questions that may be addressed during the evaluation of the stress test model
1. Apart from the forecasts provided by the Central Bank, which macro forecasts have been used?
- Why and how were these scenarios selected?
- How is this selection justified?
2. Do these stress tests sufficiently cover the main risks faced by the bank?
- How do the stress tests reflect credit and liquidity risk?
- Has the use of more granular data/tests been considered or discussed?
- Which other tests have been considered and why have they not been conducted?
3. How severe and realistic are the scenarios used?
- How was the severity of the scenario selected?
- How was the duration of the scenario selected?
- Have reverse stress tests been used?
4. Did the bank base it on a dynamic or static balance assumption?
- Why was this choice made?
- What was the main purpose of conducting the stress test?
- In which direction will the results be analyzed and used?
5. Why were the models used chosen?
- Have other models been reviewed?
- Which significance indicators have they been based on?
- What risks are considered regarding the models?
- Why were the current models/approaches selected for sensitivity tests?
- Do the scenarios rely on historical or hypothetical events?
6. What assumptions and expert opinions were used during the stress test?
- How does the bank identify and assess these situations?
- To what extent are the Board of Directors and Risk Management Committee informed about these types of situations and have they been discussed with them?
7. Does the bank have sufficient data to conduct stress tests?
- What is the source of the data used?
- Is the data checked before use?
- Are there any deficiencies in the data and what has been done to resolve them?
8. How is the second wave of impact and interrelations between risks taken into account in the stress tests?
- Which relationships among risks are reflected in the stress test?
- Which relationships are not reflected and why was this choice made?
- Has the impact of other risks on liquidity risks been evaluated?
9. Are stress tests conducted more frequently than the regulatory requirement?
10. Is the stress test program documented and does it comply with the requirements of this Regulation?
11. Has responsibility and division of labor for conducting stress tests been established?
- To what extent do other structural units participate in the process?
- If prepared by a single unit, to what extent are other structural units informed?
- If different structural divisions participate in the preparation of the stress test, how are they coordinated and consolidated in the end?
12. To what extent is the Board of Directors informed about the stress test models?
- When was the last discussion held?
- Which issues were discussed?
- What was the outcome and what relevant changes were made?
13. What audits does internal audit carry out related to stress tests and what results have been obtained?
14. Does the bank have sufficient resources to conduct stress tests?
- How does the bank assess that its employees possess the relevant knowledge and skills?
- Are the training needs of employees met?
- What other resources need to be developed?
- Does the bank receive support from external persons for conducting stress tests?
- If so, how does it determine that the external person has adequate resources in this area?
It should be noted that the new decision will come into force on June 7.