Risk Management Starts with Understanding Its Extreme Manifestations

Stress testing is one of the most important tools in modern risk management and strategic planning for banks. This process enables a bank to assess how its financial position and capital adequacy would respond under severe, yet plausible stress scenarios – whether triggered by external shocks, market disruptions, or internal vulnerabilities in the bank’s business model.

Our services include:

• Development and review of stress testing methodologies, including the selection of relevant risks, scenario design, time horizons, assumptions, and the approach to quantifying impacts.
• Design and execution of stress tests, targeting both individual risk types and aggregated effects across the institution.
• Scenario-based testing within the ICAAP/ILAAP frameworks, aligned with capital strategy and risk appetite structures.
• Evaluation of capital, liquidity, and profitability sensitivity to adverse and extreme shocks.
• Integration with the Recovery Plan, including reverse stress testing and the validation of recovery options under stress.
• Training and support for control functions, including risk management, finance, and internal audit teams, in the development and interpretation of stress testing results.
• Review of existing stress testing frameworks and reports, with actionable recommendations to align with supervisory expectations and leading industry practices.

Why is stress testing critically important?

Stress testing is not merely a regulatory checkbox – it is a strategic tool that enables management to uncover vulnerabilities that conventional metrics may overlook. Through systematic and consistent stress testing practices, the bank strengthens its resilience, prepares for adverse scenarios, and enhances data-driven strategic decision-making.