Assessing the Resilience of the Banking System of Bangladesh: A Micro Stress Testing Approach

Ratan Ghosh, Tanvir Ahmed, Zahin Irfan Khan

Abstract


Recent phases of financial unrest, fraud and irregularities have raised questions on the stability  of the banking sector of Bangladesh. This paper analyses the various risks associated with resilience of banking industry. A micro stress testing has been done in terms of revised Capital adequacy ratio (CAR), fall in CAR & revised liquid ratio in credit risk, equity price risk,  exchange rate risk & liquidity risk by applying minor, moderate and major levels of shock.  Findings reveal that while credit risk and liquidity risk can have significant impact on some of the banks, equity price risk and exchange rate risk constitute less concern. Limitations of the
study include lack of disclosure in the financial reports for which interest rate risk could not be calculated. The findings of this paper could be an alert for the stakeholders of banking sector.


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