COVID-19 Pandemic and Stress Testing the Eurozone Credit Portfolios

22 Pages Posted: 11 Oct 2020

See all articles by Larisa Yarovaya

Larisa Yarovaya

University of Southampton - Southampton Business School

Nawazish Mirza

La Rochelle Business School

Syed Kumail Abbas Rizvi

Lahore School of Economics; Université Paris 1 (Panthéon-Sorbonne)

Bushra Naqvi

Lahore University of Management Sciences (LUMS)

Date Written: October 5, 2020

Abstract

This research conduct stress tests to assess the impact of COVID-19 drag on loan portfolios of 255 credit institutions in ten most affected EU member states. We employ quarterly data at the firm level to segregate the credit exposures into seven categories of consumers and corporate borrowers. Based on the macro and micro level model specifications, and using six distressed economic scenarios, our results indicate a significant deterioration in asset quality across exposure types, institutional size, and countries’ profile. We also document a substantial increase in the probability of default and a considerable reduction in capital adequacy across our sample.

Keywords: COVID-19, Stress Tests, Credit Portfolios, Banking System

JEL Classification: G20, G21, G32

Suggested Citation

Yarovaya, Larisa and Mirza, Nawazish and Rizvi, Syed Kumail Abbas and Naqvi, Bushra, COVID-19 Pandemic and Stress Testing the Eurozone Credit Portfolios (October 5, 2020). Available at SSRN: https://ssrn.com/abstract=3705474 or http://dx.doi.org/10.2139/ssrn.3705474

Larisa Yarovaya (Contact Author)

University of Southampton - Southampton Business School ( email )

Highfield
University Road
Southampton, SO17 1BJ
United Kingdom

Nawazish Mirza

La Rochelle Business School ( email )

102 rie de Coureilles
Les Minimes
La Rochelle, 17024
France

Syed Kumail Abbas Rizvi

Lahore School of Economics ( email )

Intersection Main Boulevard
Phase VI DHA and Burki Road
Burki, Lahore 54000
Pakistan

Université Paris 1 (Panthéon-Sorbonne) ( email )

Paris, IL

HOME PAGE: http://www.univ-paris1.fr/recherche/pages-enseignants-chercheurs/page/?uid=e0g411g00pb

Bushra Naqvi

Lahore University of Management Sciences (LUMS) ( email )

D.H.A, Lahore Cantt
Lahore, Punjab 54792
Pakistan

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