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Training Member States on Stress-Testing their Financial Systems

IMG_2640The COMESA Monetary Institute is training member states on Practical Application of stress testing methods to the financial system for Central Banks. The first nine countries comprising the Democratic Republic of Congo, Egypt, Kenya, Malawi, Sudan, Swaziland, Uganda, Zambia and Zimbabwe went through the training on 18 to 21 July 2016 in Nairobi, Kenya.

Stress testing helps in identifying possible events or changes in market conditions that could adversely impact individual banks/ banking system or the entire financial system. This is done through stress testing tools that provide techniques required to measure the sensitivity of an individual institution or group of institutions or even an entire financial system to common shocks.

Addressing the participants during the training workshop, Director of the COMESA Monetary Institute Mr Ibrahim Zeidy emphasized the importance of regulatory stress testing in order to identify areas of vulnerabilities in the financial system and develop appropriate contingency plans.

Various topics were covered in the training including; Purpose and Use of Stress Tests, Data Requirements and Variables for Stress Testing and Why Macro Stress Tests are conducted. Also covered were Risk Identification, Assumptions and Scenario Design in Stress testing; Indicators for surveillance and stress tests; Shocks Applied in a Micro Stress Testing Framework; and Moving towards Integrated Macro Stress Testing Frameworks in COMESA Member Countries.IMG_2559

The training imparted hands-on skills to the participants and theoretical exposition on traditional micro-prudential perspective of stress testing as a supervisory risk management tool.

In their 21st Meeting held in November 2015 in Lusaka, Zambia, the COMESA Committee of Governors of Central Banks had directed the CMI to organize a course on “Application of Stress Testing in the Financial System.”

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