Maldives: Financial Sector Assessment Program-Technical Note on Bank Stress Testing and Climate Risk Analysis
IMF Staff Country Reports, January 19, 2024
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Bibliographic details
- Published: January 19, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400265990.002
Overview and Context
- Publication date: January 19, 2024
- Series: Country Report No. 2024/019, Issue 019, Volume 2024
- Pages: 69
- DOI: https://doi.org/10.5089/9798400265990.002
- ISBN: 9798400265990
- ISSN: 1934-7685
- Subjects: Commercial banks; Currencies; Financial institutions; Financial sector policy and analysis; International organization; Loans; Monetary policy; Money; Nonperforming loans; Stress testing
- Keywords: aggregate capitalization; B. liquidity coverage ratio; Commercial banks; Currencies; deposit concentration sensitivity analysis; Global; Loans; market risk sensitivity analysis result; market Risk sensitivity analysis result; Nonperforming loans; sensitivity analysis assumption; Stress testing; summary market Risk sensitivity analysis result; summary solvency Risk result
Key Findings from Stress Testing
- The Maldives’ economy has rebounded strongly from the pandemic-induced contraction, but macro and financial vulnerabilities remain.
- Stress test results broadly corroborated identified vulnerabilities and quantified them.
- The system appears well capitalized, although capital ratios are biased upward by large government paper holdings with zero risk weights.
- Results of the solvency stress test indicate banks are less vulnerable to credit risk than to the impact of a possible unraveling of the sovereign–bank nexus.
- Banks’ nonperforming loans (NPL) ratios are projected to:
- increase slightly in the baseline, and
- increase moderately under stress.
- The resulting additional loan loss provisions are easily offset by ample pre-provision income.
Climate Risk Analysis
- Approach: micro approach that shocks banks’ immovable asset related loans under three climate scenarios.
- The climate risk analysis is integrated with bank-level exposures to immovable-asset-related lending; scenarios are used to quantify impacts on loan performance and provisioning.
Risk Drivers and Vulnerabilities
- Sovereign–bank nexus: a key vulnerability highlighted by solvency stress test results.
- Capital ratio bias: large holdings of government paper with zero risk weights inflate reported capital ratios.
- Credit risk: while present, credit risk appears less immediately threatening than sovereign exposure risks in stress scenarios.
Implications for Bank Resilience
- Capitalization: apparent strength but subject to upward bias from zero-risk-weight government securities.
- Profitability buffer: ample pre-provision income provides capacity to absorb additional loan loss provisions arising from projected NPL increases.
- Liquidity and concentration: referenced topics include B. liquidity coverage ratio and deposit concentration sensitivity analysis (as keywords), indicating relevance to overall resilience assessment.
Data and Analytical Notes
- The technical note combines solvency stress testing and a micro-level climate risk shock to immovable-asset-related loans across three scenarios.
- The analysis quantifies vulnerabilities and projects NPL trajectories under baseline and stress conditions.
International Monetary Fund. Maldives: Financial Sector Assessment Program-Technical Note on Bank Stress Testing and Climate Risk Analysis. Country Report No. 2024/019. January 19, 2024.
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