Driving Business Value Through Stress Testing | KPMG | SG

Driving Business Value Through Stress Testing

Driving Business Value Through Stress Testing


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Driving Business Value Through Stress Testing

With the continuous evolution of new regulatory requirements, volatility in financial and commodity markets and structural shifts in the economy (e.g. ageing population and technology disruptions), the landscape for financial institutions is increasingly unpredictable.

Banks are leveraging traditional methods of stress testing to answer crucial risk management questions such as forecasting losses and capital adequacy under stressed conditions. 

While increasing number of regulators in Asia are adopting stress testing as a part of their supervisory framework, it is more than just a regulatory compliance exercise. KPMG’s benchmarking analysis on stress testing practices in Asia revealed that most banks use it for their capital planning purposes and few banks are using it to establish their risk appetite as well. 

Stress testing can be a useful tool to serve the agenda of multiple stakeholders:

  • Regulators already use it to manage financial stability of intuitions and broader financial system. 
  • CFO and CRO at banks use it for capital planning. They also need to use it for recovery and resolution planning, defining stressed limits and other internal controls. 
  • Board and senior management can use it to define the bank’s risk appetite and strategic objectives conditioned on adverse scenarios. 
  • Business heads can use it for defining their business and product strategy. They can also use it as an early warning system

In this paper, we will look at ways in which stress testing can be enhanced to help improve the management of risk and raise the level of confidence in business planning and forecasting.

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