COVID-19: stress-testing non-financial companies: a macroprudential perspective. The experience of Poland

Abstract

The main purpose of this article is to detail and supply a stress-testing framework at the individual level that investigates the impact of COVID-19 scenarios on non-financial firms’ probability of default as regards domestic and foreign-currency debt (a so-called new micro stress-test). The test addresses both the uniform and the asymmetrical transmission of shocks, in relation to sizes of firms and sectors of their activity. To allow for the running of micro stress-tests of this kind, a general model was constructed using a two-step approach comprising a microeconomic model and a macroeconomic module. Accompanying empirical analysis was based on individual data from different sources (relating to the years 2007–2020), i.e. prudential reporting, business registration, financial and behavioral data and balances of payments. In line with the factor of company size, the quality of loan portfolios is shown to deteriorate on the balance sheets of banks in all segments in the case of a negative scenario (for large and medium-sized enterprises the probability of default increases 1.5-fold, for small ones over threefold). While almost all industries will experience the impact of COVID-19, sections being hit particularly hard will involve services that, due to the ban on gatherings of people and the recommendation to avoid crowds, will lose most of their revenue and will fail to make up for this loss in the future.