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 from drought, piloted in up to 5 countries.The aim of this project is to:a) Develop 2-3 probabilistic drought scenarios covering a 5 year period from 2017-21 for 5 countries (Brazil, Mexico, India, China and possibly the United States) that simulate the impact of a drought on water availability (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 of drought 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 corporate lending portfolios of banks for resilience/sensitivity to the direct and indirect effects of drought in the selected sectors in the countries. Link the drought impacts to indicators relevant to corporate credit quality to be added to the banks' internal stress testing models.