Stress Testing of Real Estate Development Loan Risk for Banking Institutions

Since subprime crisis made a terrible catastrophe to global economy, more and more financial institutions take stress testing as one of the most important tools of risk management. Particularly, banking institutions have direct relation with real estate loans and mortgage so we need to see how would these banking institutions affect when there is an extremely bad real estate development environment. In this paper, we will take Bank of America and China Construction Bank for example. More specifically, the paper is going to find out two relationships. One is the relation between non performing loan rate of real estate and Macro economic factors development, the other one is the total non performing loan rate and non performing loan rate of real estate development. After conducting an analysis, non performing loan rate of real estate is highly related with unemployment rate and house price and real estate gives a significant influence on total company non performing loan rate. What’s more, we are also going to show how do we figure out BOA would be sensitive to house price while CCB might be influenced much more on house policy rather than house price.