STRESS TESTS AND THEIR IMPACT ON THE QUALITY OF BANKING ASSETS

Abstract

Aims demonstrate role of stress test (ST) scenarios in limiting the deterioration of the quality of banking assets of Iraqi private banks, and to identify asset quality indicators and predictive scenarios to face the risks of asset quality deterioration. In order to do so, a sample of three Islamic banks was chosen (the International Islamic Bank, the Mashreq Islamic Bank, the Islamic Trust Bank), and the research was launched in order to achieve its objectives by following the inductive approach, the descriptive approach, and the analytical approach by studying the theoretical framework of (ST) scenarios. , and indicators of the quality of assets in the research sample banks and the most important ratios measured, which were represented by six ratios: (total financing granted to capital and sound reserves, balances debited abroad to capital and sound reserves, non-performing loans to total financing, provision for loans to total financing granted, insurances receivables to total pledged credit, investments to total assets).

The research reached a set of conclusions, the most important of which are: (ST) scenarios are considered an early warning tool to determine the extent of banks’ ability to overcome deviations by predicting crises and measuring the impact of these tests on asset quality indicators.

In conclusion, the research presented a set of recommendations, the most important of which are: The research sample banks must commit to applying stress tests as an essential and complementary part of banking risk management, and that these tests must be governed by written and approved policies and procedures, and document the results, taking into account the results of these tests, and develop corrective procedures and contingency plans to confront the decline and deterioration of quality. Its assets.