COVID-19 Pandemic and Stress Testing the Eurozone Credit Portfolios
22 Pages Posted: 11 Oct 2020
Date Written: October 5, 2020
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
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