Frequently asked questions

What's the difference between stress testing and sensitivity analysis?

This question often causes confusion in banks. A sensitivity test usually assesses specific shocks to underwriting, such as decreasing Net Operating Income (NOI) levels or increasing capitalization rates. In contrast, stress testing involves defining a plausible external scenario applied to the institution's entire portfolio.

What if my loan-level information is limited?

While it is undeniably challenging, conducting meaningful stress analysis with limited data is not impossible. With fundamental information such as origination dates, maturity dates, risk ratings, and interest rates, it is possible to complete a stress test. While more specific data would enhance the results, even basic information can yield valuable insights.

Should I only evaluate my Commercial Real Estate loans in stress testing?

Every single one of your loans should be included in a comprehensive stress testing framework, regardless of perceived risk levels. A thorough approach ensures a more robust risk assessment and better prepares for unexpected scenarios.