Global Financial Trend Analysis
The aim of this report is to determine the relationship between the Non performing loans and some of the macroeconomic variables such as Interest rate, Gross domestic product and Money supply.
SCENARIO ANALYSIS IN STRESS TESTING
The global financial crisis of 2007-2008 brought attention towards the establishment of financial system that has ability to withstand during the economic crisis. In response to the global crisis and to stable financial condition in many countries, a practice is developed, known as stress testing that is seen as an optimistic tool for managing risk. Stress testing is a risk management technique used by financial institutions to quantify the extent to which different financial crisis effect the given portfolio. In present years, many efforts are
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Capital adequacy of a bank’s capital is measured by its capital adequacy ratio (CAR). CAR ensures that bank possess sufficient capital to tolerate a reasonable amount of looses and is able to fulfill its obligations with legal capital requirement. Banks having lower CAR (below statutory level) can’t expand their operations without having adequate capital. State bank of Pakistan (SBP) allowed large banks to perform scenario analysis, owning total assets of 4% or above in banking system and banks holding a share of less than 4% perform sensitivity analysis.
INTRODUCTION TO MACROECONOMIC VARIABLES AND THEIR RELATION WITH NPLs:
Macro economics variable are pointers or principle sign spots flagging the present pattern in the economy that is the reason they are in charge of the changes in the economy of any nation. So it is important to handle these variables in a well manner to keep economic condition well balanced.
Some of the macroeconomic variables that we discussed in the report are:
Interest rate
Gross domestic product
Money
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