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Sectoral stress testing of bank credit risk in China: A SUR model analysis of macroeconomic and geopolitical shocks

Author

Listed:
  • Cai, Pingling
  • Zhou, Xinmiao
  • Wang, Haohan

Abstract

This paper constructs a transmission framework for bank credit risk that integrates macroeconomic factors and geopolitical risk. Using quarterly data from 2010 to 2024, this study employs a sector-specific Seemingly Unrelated Regression (SUR) model to identify key drivers of non-performing loan (NPL) ratios and conducts macro stress testing via Monte Carlo simulation. The results highlight significant sector heterogeneity: geopolitical risk and leverage are generally positively associated with NPL ratios, while GDP and lending interest rates tend to exhibit negative associations. Under stress scenarios, sector-specific characteristics shape resilience and risk exposure, and geopolitical shocks systematically exacerbate credit risk. The findings provide actionable insights for sector-specific risk management, policy design, and macroprudential regulation.

Suggested Citation

  • Cai, Pingling & Zhou, Xinmiao & Wang, Haohan, 2026. "Sectoral stress testing of bank credit risk in China: A SUR model analysis of macroeconomic and geopolitical shocks," Finance Research Letters, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:finlet:v:90:y:2026:i:c:s1544612325024146
    DOI: 10.1016/j.frl.2025.109165

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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