The State Bank of Pakistan (SBP) Friday issued the revised guidelines on stress testing to further strengthen the risk management capacity of the banks and Development Finance Institutions (DFIs).
The revised guidelines, which are in conformity with international standards and improved capacity of banks and DFIs to perform such analysis, have been divided into three sections.
According an SBP circular, Section 1 of the revised guidelines prescribes standards for designing and implementing the stress-testing framework. Section 2 delineates the mandatory set of stress tests for credit, market and liquidity risk factors using sensitivity analysis.
While Section 3 provides guidance on optional stress tests for operational risk, Islamic banking, and advanced approaches, including scenario analysis, and reverse stress tests.
The central bank has advised the banks and DFIs to submit the results of the stress tests as specified in Section 2 on the prescribed format of these guidelines to its Banking Surveillance Department on quarterly basis, starting from quarter ending June 30, 2012, within 30 days of the close of each quarter.
