OREANDA-NEWS. The International Monetary Fund’s (IMF) Africa Regional Technical Assistance Center for Eastern Africa—East AFRITAC (AFE) and The Macroeconomic and Financial Management Institute for Eastern and Southern Africa (MEFMI) conducted a regional workshop on micro prudential stress testing from January 12–16, 2015 in Addis Ababa, Ethiopia. The workshop attracted participants from the bank supervision and financial stability units of central banks of Burundi, Ethiopia, Kenya, Mozambique, Namibia, Swaziland, Tanzania, Uganda, and Zambia.

Solomon Desta, Director of the Bank Supervision Directorate of the National Bank of Ethiopia, emphasized that stress testing is an important tool for assessing the inter-linkages between institutions and sectors, facilitating the identification of potential vulnerabilities and the buildup of risks across sectors.

The growing attention on stress testing since the global financial crisis and the resulting regional initiatives to implement comprehensive stress testing frameworks that are customized to local and regional circumstances prompted the workshop. International and regional experts facilitated the session built around the Cihak framework developed by the IMF, which is being adopted and implemented, sometimes in a modified form, by the central banks in the region.

The global financial crisis led to customized regional and local initiatives to implement comprehensive stress testing frameworks. International and regional experts coordinated the workshop around the IMF’s Cihak framework, which is being implemented by central banks in the region. The workshop also covered additional stress testing approaches currently employed by countries in the region.

Specific areas covered included: stress testing and sensitivity analysis for credit risk; interest rate risk; foreign exchange risk; liquidity risk; and testing for possible spillover effects through interbank contagion. . The concepts and approaches discussed were tailored to the regional context and took into account data availability constraints.

Participants agreed that there is scope for further capacity building in this area. IMF East AFRITAC stands ready to provide further Technical Assistance (TA) to its member countries on stress-testing. This could include the implementation of the Internal Capital Adequacy Assessment Process (Pillar 2 of the Basel II framework). The technical assistance center will also continue to support TA provided by the Monetary and Capital Markets Department of the IMF on macro prudential stress testing in the region.