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A Framework for Macroprudential Bank Solvency Stress Testing: Application to S-25 and Other G-20 Country FSAPs

Liquidity at Risk: Joint Stress Testing of Solvency and Liquidity

Liquidity at risk: Joint stress testing of solvency and liquidity

Liquidity at Risk: Joint Stress Testing of Solvency and Liquidity

Climate change and geopolitical instability have emerged as critical systemic threats to global financial stability, compelling regulators and financial institutions to reassess the adequacy of traditional stress testing and scenario analysis frameworks. While such tools have been foundational in post-crisis prudential regulation, their adaptation to climate-related and geopolitical risks remains uneven, with significant methodological, data, and governance challenges. This review examines the evolution of stress testing from credit and market risk applications to its integration with environmental, social, and geopolitical risk factors. Drawing upon frameworks developed by the Basel Committee on Banking Supervision, the Network for Greening the Financial System (NGFS), the International Monetary Fund (IMF), and national regulators, the paper evaluates whether current regulatory models sufficiently capture the complexity, nonlinearity, and long-horizon impacts of climate and geopolitical shocks. The analysis highlights methodological innovations, including macro-financial linkages, cross-border contagion modeling, and tail-risk scenario design, while identifying persistent gaps in scenario plausibility, temporal scope, and integration into supervisory decision-making. Case studies from the European Central Bank, Bank of England, and stress testing exercises in emerging markets illustrate both promising practices and structural deficiencies. The review concludes with policy recommendations to enhance regulatory readiness through harmonized scenario design, improved data granularity, forward-looking risk metrics, and the embedding of climate-geopolitical risk analysis into macroprudential policy.

This study aimed to examine the effect Loan to Deposit Ratio (LDR) , Capital Adequacy Ratio (CAR) , Return on Assets (ROA) and Non -Performing Loans (NPL) on stock returns banking companies listed in Indonesia Stock Exchange . The Independent variable used is the Loan to Deposit Ratio (LDR) , Capital Adequacy Ratio (CAR) , Return on Assets (ROA) and non- performing loan (NPL) dependent variable stock returns . The purpose of this study was to obtain empirical evidence about the influence of Loan to Deposit Ratio (LDR) , Capital Adequacy Ratio (CAR) , Non Performing Loan (NPL) and Return on Assets (ROA) on stock returns banking companies listed in Indonesia Stock Exchange . The population in this study is a banking company that is listed on the Indonesia Stock Exchange (IDX) the observation period 2008 to 2012 . Data used in this study was obtained from the Bank's Financial Statements obtained from the website of the Indonesia Stock Exchange and Bank Indonesia . Data analysis method used is multiple linear regression , hypothesis testing while using the simultaneous test ( F test ) to test the effect of these variables together and t test with a significance level of 5 % to test the effect of partial variables . Based on the test results , the results obtained simultaneously Loan to Deposit Ratio (LDR) , Capital Adequacy Ratio (CAR) , Return on Assets (ROA) and Non -Performing Loans (NPL) effect on stock returns in banking companies listed in Indonesian Stock Biursa , while partially Loan to Deposit Ratio (LDR) has a positive effect is not significant , its capital adequacy ratio (CAR) and Return on Assets (ROA) and a significant positive effect of Non performing loan (NPL) significant negative effect on stock returns in corporate banking . Predictive ability of the four variables on stock returns is 57.1 % , as indicated by the adjusted R2 , while the rest is influenced by other factors not included in our model .
 Keywords: stock return, Loan to Deposit Ratio, Capital Adequacy Ratio, Return on Assets, Non-performing loan

This study aims to examine the impact of asset quality on the financial health of commercial banks in Cambodia. Using an explanatory approach with panel data analysis, the research analyzes annual data from 2017 to 2023 for 57 commercial banks, sourced from the National Bank of Cambodia. The analysis explores the effects of Non-Performing Loans (NPLs), Bank Size, Capital Adequacy Ratio (CAR), Interest Rates, Inflation Rate, and GDP Growth on Return on Assets (ROA) and Return on Equity (ROE). Diagnostic tests for heteroskedasticity, serial correlation, multicollinearity, and model specification are employed to ensure the robustness of the results. The findings indicate that NPLs significantly negatively impact both ROA and ROE, while Bank Size positively influences ROE but does not significantly affect ROA. CAR has a negative impact on both profitability metrics, suggesting that higher capital ratios reduce profitability due to increased capital costs. Interest Rates and Inflation Rate also show significant negative effects on ROA and ROE, whereas GDP Growth positively impacts both measures. To enhance financial health and performance, Cambodian commercial banks should focus on improving credit risk management, optimizing CAR, developing strategies to manage interest rate and inflation risks, and leveraging economic growth. These measures will strengthen financial health, improve performance metrics, and contribute to a more stable banking sector in Cambodia. Keywords: Asset Quality, Financial Health, Commercial Banks, Non-Performing Loans (NPLs), Bank Size, Capital Adequacy Ratio (CAR), Interest Rates, Inflation Rate, GDP Growth, Return on Assets (ROA), Return on Equity (ROE).

This study to analyze the effect of Non-Performing Loans (NPL) and Loan Growth on the financial stability of PT Bank Cental Asia Tbk during 2015-2024 period. Financial stability in this study is measured using two main indicarors: the Capital Adequancy Ratio (CAR) and Return on Assets (ROA). The research adopts a quantitative appoarch using multiple linear regresion analysis. The result indicate the partially, NPL has a positive and significant effect oon CAR, qhile Loan Growth does not signifivantly affect CAR. Conversely, NPL has a significant negative effect on ROA, and Loan Growth has a significant positive effect on ROA. Simultaneously, both indipendent variabels NPL and Loan Growth have a significant effect on both CAR and ROA. These findings highlight that effective credit risk management and well executed lending strategies are crucial in maintaining the bank’s financial stability and profitability.

Masita Wahyuni Asih 2024, The Effect of Non Performing Loan (NPL), Return on Asset (ROA), and Capital Adequacy Ratio (CAR) on Price to book value (PBV) at BUMN Banks listed on the Indonesia Stock Exchange for the 2018-2023 Period. Makassar STIM-LPI Management Science Study Program (supervised by Fausiah, S.E., M.Si. and Andi Herman Tellu, S.E., M.M.). The purpose of this study was to determine the effect of Non Performing Loan (NPL), Return on Asset (ROA), and Capital Adequacy Ratio (CAR) on Price to Book Value (PBV) at BUMN banks listed on the Indonesia Stock Exchange both partially and simultaneously. Price to Book Value (PBV) is the dependent variable (Y), and three independent variables (X) are used, namely Non Performing Loan (NPL), Return on Asset (ROA), and Capital Adequacy Ratio (CAR). Saturated sampling was used to obtain secondary data from a population of 4 banking companies listed on the Indonesia Stock Exchange. Descriptive statistics and classical assumptions, such as multicollinearity assumption and heteroscedasticity assumption, have been tested in relation to the research findings. The data analysis approach uses panel data regression, hypothesis testing, and the Fixed Effect Model (FEM) test. The partially tested study results show that while non-performing loans (NPLs) do not affect price to book value (PBV) significantly, there are return on assets (ROA) and capital adequacy ratio (CAR) that do. The findings of this study also simultaneously show that PBV is significantly affected by NPL, ROA, and CAR.

This study aims to determine the effect of People’s Business Credit (KUR) Distribution, Non Performing Loan (NPL), Bank Indonesia Rate Level and Capital Adequacy Ratio (CAR) on profitability at PT Bank Rakyat Indonesia (Persero) Tbk for the period 2016-2023. The population in this study were all financial reports published by PT Bank Rakyat Indonesia (Persero) Tbk for the period 2016-2023. The sampling technique used was purposive sampling with the criteria for presenting data on people’s business credit distribution, Non Performing Loan (NPL), Bank Indonesia Rate Level and Capital Adequacy Ratio (CAR) and profitability at PT Bank Rakyat Indonesia (Persero) Tbk for the period 2016-2023. The data analysis of this study used SPSS. The results of the study showed that the People's Business Credit (KUR) Distribution variable partially had a positive and significant effect on the profitability of PT Bank Rakyat Indonesia with a significant value of 0.044. The Non Performing Loan (NPL) variable partially has a negative and significant effect on the profitability of PT Bank Rakyat Indonesia with a significant value of 0.017. The Bank Indonesia Interest Rate variable partially has a positive and significant effect on the profitability of PT Bank Rakyat Indonesia with a significant value of 0.031. While the Capital Adequacy Ratio (CAR) variable partially has a positive and insignificant effect on the profitability of PT Bank Rakyat Indonesia with a significant value of 0.083. This study shows that 58% of the profitability of PT Bank Rakyat Indonesia is influenced by the Distribution of People's Business Credit, Non Performing Loan (NPL), Bank Indonesia Interest Rate and Capital Adequacy Ratio (CAR) together.

This article summarizes the European Union’s stress testing exercises and future priorities. The 2011 solvency stress testing was marked by methodology and data. The exercise forced banks to increase the quality and quantity of capitalization. This test has many controversial issues, but the benefits of this bold approach overshadow the risks. Several stress testing exercises have filled the pages of literature; an additional stress test is reviewed here.

This study aimed to determine the effect of Non Performing loans and Net Interest margins on financial performance with the Capital Adequacy Ratio as an intervening variable in the Banking Sector listed on the Indonesia Stock Exchange 2019-2021. The population in this study were all Banking Sectors listed on the Indonesia Stock Exchange in 2019-2021, totaling 47 Banks. The sampling technique for this study used purposive sampling, so that 13 samples were obtained, which were used as data analysis. Data analysis and hypothesis testing in this study used the Smart PLS 3.0 application. The results of this study indicate that Non Performing Loan has a positive but insignificant effect on Capital Adequacy Ratio, Net Interest Margin has a significant negative effect on Capital Adequacy Ratio, Non-Performing Loan has a positive but insignificant effect on Financial Performance, Net Interest Margin has a significant negative effect on Capital Adequacy Ratio. Significant to financial performance, Net Interest Margin has a negative but insignificant effect on financial performance, Capital Adequacy Ratio has a positive but insignificant effect on financial performance, Non-Performing Loan has a positive but insignificant effect on financial performance through Capital Adequacy Ratio, and Net Interest Margin has a negative but insignificant effect on financial performance through Capital Adequacy Ratio.

Since the global financial crisis, stress testing has received renewed attention. On one hand, pre-crisis stress tests yielded largely benign results, which called into question the effectiveness of stress testing for detecting financial system-wide risks, namely systemic risks. On the other hand, stress testing now has enhanced roles for crisis management and financial sector oversight. In order to better shoulder these new roles, the stress testing framework should be improved, incorporating systemic risk perspectives. This article proposes best practice principles for such a framework, building on the lessons from the crisis. The test should be designed appropriately, including a clear understanding of the scope and objectives, knowledge of the key individual financial institutions in the system, their business models and main channels of risk transmission, and right decision on the test's perimeter and coverage. However, there will be limitations, regardless of refinements and improvements. One should therefore always be cautious about using test results in isolation: a well-rounded risk assessment should use stress tests with other tools to broaden the understanding of vulnerabilities.

This paper presents the first version of SYSMO, the analytical framework employed by the Financial Stability Department at the Banco de la Repblica (the Central Bank of Colombia) to perform its biannual, top-down, stress testing exercise. The framework comprises: (i) a module to produce internally consistent macroeconomic scenarios; (ii) a set of satellite risk models that capture the materialization of credit and market risks in times of stress, and (iii) a bank model that simulates the endogenous response of banks to an adverse scenario. The framework also incorporates endogenous contagion and funding risks, key regulatory constraints (solvency and liquidity), and the feedback effects between the endogenous response of banks and the macroeconomic scenario. The use of SYSMO is illustrated with the example of the stress testing exercise published in the Banco de la Repblica's Financial Stability Report of the second semester of 2017.

This study aims to determine the contribution of Productive Asset Quality (KAP) and Non Performing Loans (NPL) to the Capital Adequacy Ratio (CAR) with profitability (ROA) as an intervening variable at Conventional Rural Banks (BPRK) in the area of ​​the Kantor Otoritas Jasa Keuangan (KOJK). From the second quarter of 2020 to the third quarter of 2021, the research sample consisted of 30 BPRK with a total of 180 research data. Data were collected using the cluster sampling method. Path analysis technique was used to analyze the data. The results of the analysis show that Productive Asset Quality (KAP) has a positive and insignificant effect on the Capital Adequacy Ratio (CAR). Non-Performing Loan (NPL) has an insignificant negative effect on the Capital Adequacy Ratio (CAR). Productive Asset Quality (KAP) has a significant positive effect on profitability (ROA). Non-Performing Loan (NPL) has a significant negative effect on profitability (ROA). Profitability (ROA) has a significant positive effect on the Capital Adequacy Ratio (CAR). And profitability (ROA) does not significantly mediate the effect of Productive Asset Quality (KAP) and Non-Performing Loans (NPL) on the Capital Adequacy Ratio (CAR).