Financial Regulatory Authority‘s first stress test on the impact of covid-19 on the non-banking financial services sector demonstrated the “strength in the financial position” of the sector, FRA head Mohamed Omran announced
It was for the first time in Egypt to conduct a stress test the non-banking financial sector institution tolerance to financial shocks caused by the global coronavirus pandemic, Omran added.
FRA has developed earlier this year an analytical stress testing tool to measure the impact of macroeconomic crises such as a liquidity crunch, changing interest rates or debt default on the non-bank financial services sector.
FRA has conducted the test on companies operating in the insurance, financial services, asset management, leasing, mortgage, factoring and SME financing sectors.
The results showed that most of these sectors were able to withstand some of the riskiest scenarios:
The insurance sector exhibited very limited bankruptcy risks during the crisis and moderate risks to any liquidity crisis that might arise.
Firms in the sector were also in good shape to handle any drop in profitability.
20 percent of the firms working in Financial services and asset management sector would experience ‘moderate pressure’ if interest rates fall by 100 basis points, while another 20 percent would see ‘moderate pressure’.
Meanwhile, only 10% percent of the companies will be in ‘moderate pressure’ if interest rates rise by 100 basis points.
In addition, the sector is currently exposed to moderate risks to any liquidity crisis.
The Mortgage financing, leasing, and factoring sector is only at a moderate risk of financial insolvency during Covid-19, while it is at a mild risk of collapse in the event of a recession or a liquidity crunch.
There is also a moderate risk for the SMEs financing sector to face financial insolvency during the Covid-19 crisis, while showing an “appropriate” risk to a liquidity crunch or a recession.
