Driving business value through stress testing
An increasing number of regulators in Asia are adopting stress testing as a part of their supervisory framework. For banks, however, this can be much 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 some banks are using it to establish their risk appetite as well.

A well designed and well implemented stress testing framework can add value to a bank in many different ways including:
  • guiding the bank’s strategic objectives, product strategy and investment strategy
  • enabling better informed and sharper funding strategy and contingency planning
  • managing equity risks through improved understanding of the impact of adverse scenarios on minority investments
  • assessing the impact of contagion from high impact firms given the inter-connectedness of our financial system
  • forecasting ‘real-world’ outcome arising from balance sheet changes
  • determining idiosyncratic factors that influence operational risk losses and with this understanding, enhance internal controls
In this paper, we will look at ways in which stress testing can be employed and enhanced to improve the management of risk and raise the level of confidence in business planning and forecasting.

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