Stress Testing and Scenario Analysis Training Course

This course equips participants with practical skills to design, implement, and interpret stress tests and scenario analysis in financial institutions and corporate environments. It focuses on assessing resilience under adverse economic conditions, identifying vulnerabilities, and supporting risk-informed decision-making. Participants will learn how stress testing is used in regulatory compliance, capital planning, and financial stability assessment.

Target Groups

• Risk managers and analysts
• Central bank and regulatory staff
• Banking and financial institution professionals
• Treasury and ALM officers
• Investment and portfolio managers
• Finance and accounting professionals
• Internal auditors and compliance officers
• Economists and policy analysts
• Development finance institution staff
• Finance and business students

Course Objectives

By the end of this course, participants will be able to:

• Understand the principles of stress testing and scenario analysis
• Design macroeconomic and financial stress scenarios
• Apply sensitivity and scenario-based risk assessments
• Evaluate the impact of shocks on financial performance
• Conduct reverse stress testing exercises
• Integrate stress testing into risk management frameworks
• Support capital planning and regulatory reporting
• Interpret stress test results for decision-making
• Identify vulnerabilities in financial systems and portfolios
• Improve organizational resilience under adverse conditions

Course Modules

Module 1: Introduction to Stress Testing

• Definition and importance of stress testing
• Objectives of stress testing in risk management
• Types of stress tests
• Regulatory expectations and standards
• Role in financial stability

Module 2: Scenario Analysis Fundamentals

• Definition and purpose of scenario analysis
• Types of scenarios (baseline, adverse, extreme)
• Scenario design principles
• Historical vs hypothetical scenarios
• Linking scenarios to risk factors

Module 3: Sensitivity Analysis

• Understanding risk sensitivities
• One-factor and multi-factor sensitivity analysis
• Interest rate and FX sensitivity
• Credit and market risk sensitivities
• Interpreting sensitivity results

Module 4: Macroeconomic Stress Testing

• Linking macroeconomic variables to risk models
• GDP, inflation, and unemployment shocks
• Interest rate and exchange rate shocks
• Sectoral stress impacts
• Transmission channels of stress

Module 5: Credit Risk Stress Testing

• Portfolio credit stress testing
• Probability of default (PD) under stress
• Loss given default (LGD) adjustments
• Portfolio migration analysis
• Impact on loan books and capital

Module 6: Market and Liquidity Stress Testing

• Market risk under extreme conditions
• Value-at-Risk (VaR) under stress scenarios
• Liquidity stress testing techniques
• Funding shocks and liquidity gaps
• Contingency funding planning

Module 7: Reverse Stress Testing

• Concept and purpose of reverse stress testing
• Identifying failure points
• Designing extreme but plausible scenarios
• Institutional vulnerability assessment
• Risk mitigation strategies

Module 8: Integration with Risk Management Frameworks

• Embedding stress testing in ERM
• Link to capital adequacy planning
• Governance and oversight structures
• Internal risk reporting systems
• Decision-making using stress test outputs

Module 9: Regulatory Requirements and Reporting

• Basel stress testing guidelines
• Central bank stress testing frameworks
• ICAAP and capital planning
• Reporting standards and disclosures
• Supervisory review processes

Module 10: Capstone Project and Case Studies

• Full institutional stress testing exercise
• Credit portfolio stress simulation
• Macroeconomic shock impact analysis
• Liquidity crisis scenario case study
• Emerging trends including AI-driven stress testing, real-time stress dashboards, climate risk stress testing, and integrated system-wide financial resilience modeling