Description:
This paper investigates the drivers of the change in the credit risk provisions at a portfolio level for banks that have been subject of the 2018 EBA stress tests. We perform a holistic review of the drivers of the three-year projections of credit losses. We define a model containing all the macroeconomic variables considered by the EBA approach. By adding a three-dimension set of explanatory variables, entity-, banking sector- and portfolio-level aspects, we verify that the published results show a relation with these explanatory variables. Our results show that, although EBA variables explain most part of credit risk provisions, bank-level variables, banking sector features, and the specific characteristics of the portfolio also play a role in explaining part of the provisions. The results also indicate the existence of complementary/substitution effects of both bank- and portfolio-level variables with the characteristics of the banking sector when explaining credit risk provisions