Stress Testing Corporate Lending Portfolios for Drought Scenarios.

Descriptions

Develop a model and framework to stress test corporate finance portfolios for exposure to economic risks fromdrought, piloted in up to five countries.The aim of this project is to:a) Develop 2-3 probabilistic drought scenarios covering a five-year period from 2017 — 21 for five countries(Brazil, Mexico, India, China and possibly the United States) that simulate the impact of a drought on wateravailability (and other climatic factors if relevant) taking into account local water infrastructure.b) Develop a model to estimate the direct, indirect (e.g. through value chains) and macroeconomic effects ofdrought on up to 8-12 industries in each of the countries.c) Based on the above, develop a framework to apply the model, developed under b), to stress test corporatelending portfolios of banks for resilience/sensitivity to the direct and indirect effects of drought in the selectedsectors in the countries. Link the drought impacts to indicators relevant to corporate credit quality to be added tohe banks' internal stress testing models.