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    CBK Implements Advanced Stress Testing Framework for Banks

    December 29, 2020

    The Governor of CBK announced the development of a new framework for stress testing the banking system. The CBK Governor Dr. Mohammad Y. Al-Hashel said that the newly developed framework represents a holistic, highly flexible, and dynamic stress-testing approach that allows the incorporation of varied scenarios with a multitude of micro- and macro-economic and financial variables with capabilities to reflect the impact in granular detail on different sectors. CBK will start applying the new stress-testing framework on the current year’s data and announce the results thereof in the first quarter of 2021.

    The Governor emphasized that CBK has been working on developing stress-testing frameworks and models since the COVID-19 outbreak. These frameworks, built in collaboration with an international consultant, match the increasingly complex and highly uncertain economic environment by utilizing advanced technology, analysis of a multitude of economic and banking variables, and input by global experts to ensure the ability of the newly developed framework to produce forward-looking outputs in line with the defined scenarios. To ensure its efficacy, the new framework was back-tested using 2019 data. The results proved the framework’s effectiveness and capability in translating the varied stress-testing scenarios with consistent outputs. 

    The Governor concluded his statement by indicating that the new stress-testing framework represents the completion of the first phase of a broader project, with the following phase now in-development. In the upcoming phase, the project will use machine learning and artificial intelligence to enhance output quality, improve the ability to analyze different drivers and capabilities, and capture evolving economic drivers and trends. This will instill a deeper understanding that will evolve alongside the economic landscape and banking sector and, hence, ensure the quality of the stress-testing exercises. 

     

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    Keywords: Middle East and Africa, Kuwait, Banking, Stress Testing, COVID-19, Basel, CBK

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