FI Analysis 24: Stress test of bank lending to commercial real estate firms

Commercial real estate firms are sensitive to changes in interest rate expenses and income. Following a shock, vulnerable commercial real estate firms could lead to credit losses for the banks.

This FI Analysis describes the stress test FI used to analyse how the commercial real estate firms' financial position, and the banks' related credit risks, can be affected by a negative macroeconomic development. The method is based on detailed information about the banks' lending portfolios, which are matched with other data to obtain information about the commercial real estate firms' financial position.

FI has used this method to assess the resilience of the banks to a shock on the commercial real estate market. However, this micro-based stress test method can also be applied to other parts of the banks' portfolios. A benefit of this method is that it takes into consideration the current credit risk in the banks' lending portfolios by starting with the counterparties' financial position.

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