Abstract

The purpose of this article is to provide a new vision, a realistic and precise application in risk management within the Algerian banking sector. The purpose of the stress test is to anticipate both the risks and the capital required for the coming months or years, taking into account possible shocks, whether they are economic or based on assumptions internal to the bank.

This article aims to assess the stability of the Algerian banking system in order to examine the resilience of the 12 public and private banks between 2012 and 2016. The methodology used is based on a macro-prudential (top-down) approach by mobilizing data from the accounting and financial documentation of Algerian banks. The Cooke ratio is the key indicator used as a measure reflecting the solvency of banks.

The results show that the Algerian banking system is showing increased resistance to shocks before and after the drop of oil prices. Algerian banks are solvent in the short and medium term. Stress tests showed their performance, reflecting the exact position of capital after a pessimistic shock.

The diversity of the shocks represents the strong point of the stress tests; it is indeed a principle of adaptation with any macro-microeconomic environment. It is enough to interpret the results in a clear and comprehensive way to make a strategic decision. Resistance testing is an effective tool in decision-making. They appear in different approaches or standards, whether qualitative or quantitative.

In Algeria, stress tests are far from performing well due to several reasons. A weak banking data infrastructure limits the optimal application of stress tests. Hence, insufficient training of banking staff to master the tools for analysis and application of stress tests. That is why, Algerian monetary supervisors should continue to progress in the area of risk management, applying various mechanisms.

Keywords: banking risk management, prudential rules, macroprudentiel approach, bale 3, stress test, algerian banks.

JEL Classification: G01, G21, G32.

Cite as: B. Mehdi. (2018). Financial stability and Solvency of Algerian banks, application of stress tests from 2012 to 2016. Financial Markets, Institutions and Risks, 2(4), 57-67. DOI: http://doi.org/10.21272/fmir.2(4).57-67.2018

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