A Framework for Macroeconomic Stress Testing on Credit Risk Management in Banking Sector

Abstract

- In Sri Lanka the financial System composes the leading financial institutions which are associated with increased growth of an economy and contributes to the nation’s growth as well. Hence Financial system stability has become an integral part which safeguards financial system which is able to hold off external and internal shocks. This Process implements a healthy environment for investors and encourages financial markets and institutes for the efficient and effective functioning. The maintenance of financial system stability leads to analyze and emphasize potential vulnerabilities and risks to the financial system. Among the potential vulnerabilities and risks, Credit risk can be introduced as the dominant and leading macroeconomic risk factor in many banking sectors which has been introduced as the problem towards the financial system stability. Therefore Credit risks must be managed from financial crisis to enhance the performance, sustainable growth and consistent profitability for the betterment of financial system stability. The purpose of this research project is to propose a framework to investigate the relationship between credit risk management and its impact on performance of the Sri Lankan Banking Sector.