Barbados: Stress testing

The technical assistance mission developed a multi-factor, multi-period solvency stress testing framework for banks supervised by the Central Bank of Barbados (CBB) and credit unions supervised by the Financial Services Commission (FSC). This framework is built around explicit macroeconomic scenarios and credit risk satellite models for non-performing loans (NPLs), estimated separately for each type of institution. The calibrated macroeconomic scenarios are integrated into the NPL satellite models to project NPLs and, ultimately, credit losses. The developed tools provide scenario-specific, macroeconomically consistent projections of institutions’ key balance sheet, profit and loss, and capital adequacy items over a period of up to three years.