Macro-Finance Salon (No. 182): Commercial Banks’ Comprehensive Risk Management and Stress Tests During the COVID-19 Pandemic

2022-05-24 IMI

On April 27, the Macro-Finance Salon (No. 182) was held online. This event was co-hosted by the IMI, the Department of Monetary Finance, School of Finance, RUC, and the Research Center for China’s Banking Sector, School of Finance, RUC. During the seminar, Associate Professor Zhu Wenyu from the School of Finance, RUC delivered a keynote speech titled “Commercial Banks’ Comprehensive Risk Management and Stress Tests During the COVID-19 Pandemic”. Participating in the Salon were Huang Jinlao, President of Jiangsu Suning Bank Co., Ltd; Kong Qinglong, Secretary of CPC and President of Hefei Branch, CMBC; Tu Yonghong, Director of the Yangtze River Economic Belt Research Institute, RUC and IMI Deputy Director; and Zeng Gang, Director of Shanghai Institution for Finance & Development and Deputy Director of National Institution for Finance & Development. The Salon was moderated by Zhao Xijun, Co-Dean of the Academy of China Capital Market, RUC.


Professor Zhu made a keynote address entitled “Commercial Banks’ Comprehensive Risk Management and Stress Tests During the COVID-19 Pandemic”. In his presentation, he noted that the banking sector faces a series of new changes and challenges in the post-pandemic era. Statistics show that banking financial institutions’ net income dropped in between 2019 and 2020, but the sector’s NPL ratio and CAR remained overall stable. The drop in net income was mainly due to profit transfer from banks to the real economy, support for structural monetary policy, and dynamic provisioning. Industries hit hard by the pandemic incurred relatively more credit risks. Regional banks were more susceptible to regional pandemic shock. As requested by the regulatory authorities, commercial banks need to conduct comprehensive risk management, quantitatively identifying stress scenarios and shocks that may hinder them from meeting some regulatory requirements. A bank stress test is mainly an accounting statements-based framework which assesses how resilient commercial banks are to all types of risks, including credit, market, liquidity, interbank contagion, and compound risks. The results of bank stress tests performed by the People’s Bank of China indicate that (1) China’s banking sector overall has relatively strong ability to stand the risks; (2) the number of high-risk financial institutions is falling year by year and the proportion of such institutions is very low; (3) systemic risks are relatively low; (4) but there are some tail risks. It is recommended that changes that potentially arise from the pandemic be incorporated into the stress test model and indirect effects of exchange rate risks deserve special attention. Banks should build stress test models suitable for themselves based on their own loan structures. Tail risks of the banking sector that arise from the pandemic shock to SMEs should be monitored. While structural monetary policy is being implemented, tail risks of the banking industry should be guarded against.