Effective from Nov 23 2011 - Nov 22 2011 To view other versions open the versions tab on the right
Banks should develop a set of stress scenarios reflecting increasing levels of severity in line with the levels defined in Para 6.2 above. While developing the stress scenarios, banks should pay due regard to the following factors:
i.
The selected stress scenarios should fully reflect the business environment and risk profile of individual banks;
ii.
The scenarios may be based on historical events reflecting the actual experience of the bank or the banking industry in worst situations with appropriate adjustments, or non-historical/hypothetical ones based on a combination of factors including past experiences, prevailing market trends, future outlook and exercise of judgment;
iii.
All material and significant risk factors having the potential to adversely affect the assets quality and profitability of the bank should be taken into account in scenario development;
iv.
The scenarios should be comprehensive to cover the overall portfolio of the bank as well as its major business areas. Moreover, they should cover both on-balance sheet and off-balance sheet/contingent exposures;
v.
Stress tests should include scenario(s) that could threaten the viability of the institution (reverse stress testing). Further guidance on selection of such scenario(s) has been provided in Section 5.4.
