Stress Testing, Scenario Analysis and Risk Modelling

Stress testing and scenario analysis have become important components of modern risk management, particularly following the global financial crisis of 2007–2009, which exposed weaknesses in institutions' ability to anticipate the impact of severe economic and financial shocks. The Basel Committee subsequently strengthened its stress-testing principles, recognizing stress testing as a critical component of bank risk management and financial-sector supervision.

Stress testing involves assessing the potential impact of severe but plausible adverse conditions on an institution's financial position, while scenario analysis examines how combinations of economic, financial and business shocks could affect profitability, liquidity, capital adequacy and overall resilience. Risk modelling provides the quantitative techniques required to measure and project these impacts.

In Nigeria, the importance of stress testing is particularly significant for banks and other financial institutions. The CBN Guideline on Stress Testing for Nigerian Banks requires banks to develop forward-looking stress-testing frameworks and use the results to assess vulnerabilities in earnings, liquidity, asset values, capital adequacy and other areas of risk. The CBN also expects stress testing to be embedded within the institution's broader risk management framework.

The course therefore provides participants with a practical understanding of how to design stress scenarios, develop risk models, interpret stress-test results and translate the findings into appropriate risk mitigation, capital planning and strategic decisions.

Course Objectives

At the end of this course, participants should be able to:

1. Understand the principles and purposes of stress testing, scenario analysis and risk modelling.
2. Explain the relationship between risk identification, risk measurement, stress testing and strategic decision-making.
3. Design an effective enterprise-wide stress-testing framework aligned with an organization's risk profile.
4. Identify key risk drivers and vulnerabilities that could adversely affect an institution's financial performance.
5. Develop realistic and challenging adverse and extreme-but-plausible scenarios.
6. Apply sensitivity analysis, scenario analysis and reverse stress testing to different risk exposures.
7. Assess the impact of economic variables such as inflation, interest rates, exchange rates, GDP growth, unemployment and commodity prices on business performance.
8. Understand the application of stress testing to credit, market, liquidity, operational and concentration risks.
9. Develop and interpret basic risk models and quantitative risk measures.
10. Understand the use of Probability of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD) in credit-risk modelling and stress testing.
11. Assess the impact of adverse scenarios on profitability, capital adequacy, liquidity and asset quality.
12. Understand the relationship between stress testing and ICAAP, capital planning and risk appetite.
13. Evaluate the quality, limitations and assumptions of risk models.
14. Identify and manage model risk arising from inappropriate assumptions, poor data or model limitations.
15. Interpret stress-testing outputs and convert them into practical management actions.
16. Develop appropriate risk mitigation and contingency strategies based on stress-test results.
17. Understand the expectations of regulators and international best practices relating to stress testing.
18. Improve management's ability to make forward-looking, data-driven risk decisions.
19. Understand how stress testing can be used to assess an organization's resilience to economic and financial shocks.
20. Develop a stronger risk-management culture by incorporating stress-testing results into strategic planning and decision-making.

Benefits of the Course

Participants will gain the following benefits:

1. Improved Risk Identification: Participants will learn how to identify vulnerabilities that may not be obvious under normal business conditions.

2. Better Preparedness for Economic Shocks: The course helps organizations prepare for events such as recession, inflation, exchange-rate volatility, interest-rate increases, liquidity pressures and deterioration in asset quality.

3. Stronger Capital Planning: Participants will understand how stress-test results can inform capital adequacy and capital planning. This is particularly important for banks because the CBN expects stress-testing outcomes to support forward-looking capital assessment.

4. Enhanced Liquidity Management: Participants will learn how to assess potential liquidity pressures and develop appropriate contingency responses.

5. Improved Credit Risk Management: Stress testing can help institutions assess how deterioration in borrowers' financial conditions could affect loan performance, provisions, expected credit losses and capital.

6. Better Strategic Decision-Making: Management can use scenario analysis to evaluate the potential consequences of major strategic decisions before implementation.

7. Stronger Risk Models: Participants will gain a better understanding of how quantitative models can be developed, tested, challenged and improved.

8. Enhanced Regulatory Compliance: The course helps participants understand the regulatory importance of stress testing and its relationship with ICAAP, capital adequacy and supervisory expectations. The CBN expects Nigerian banks to perform stress testing at least quarterly and integrate it into their risk-management processes.

9. Improved Business Resilience: Organizations become better prepared to withstand severe but plausible adverse conditions.

10. Better Understanding of Risk Interdependencies: Participants will learn how different risks can interact—for example, how an exchange-rate shock can simultaneously affect credit risk, market risk, liquidity, profitability and capital.

11. Improved Risk Reporting: Participants will be better equipped to communicate stress-test results to management, boards, risk committees and regulators.

12. Stronger Risk Governance: The course reinforces the importance of board and senior-management involvement, governance, documentation and oversight in effective stress-testing frameworks.

Who Should Attend?

This programme is suitable for professionals involved in risk management, financial analysis, banking, finance, compliance, audit, treasury and strategic decision-making.

1. Banking & Financial Institutions

• Chief Risk Officers
• Risk Managers
• Enterprise Risk Managers
• Credit Risk Managers
• Market Risk Managers
• Liquidity Risk Managers
• Operational Risk Managers
• Risk Analysts
• Credit Analysts
• Treasury Managers
• ALM Officers
• Financial Analysts
• Portfolio Managers
• Investment Managers
• Capital Planning Officers
• ICAAP Officers
• Regulatory Reporting Officers

1. Management & Governance

• Managing Directors/CEOs
• Executive Directors
• Chief Financial Officers
• Chief Compliance Officers
• Chief Internal Auditors
• Board Risk Committee Members
• Senior Management
• Risk Committee Members 

1. Control Functions

• Internal Auditors
• Compliance Officers
• Financial Controllers
• Business Continuity Officers
• Operational Resilience Professionals
• Model Validation Specialists
• Data Analysts
• Business Analysts 

1. Other Organizations 

• Insurance companies
• Pension fund managers
• Fintech companies
• Microfinance banks
• Development finance institutions
• Investment firms
• Oil & gas companies
• Manufacturing companies
• Telecommunications companies
• Government agencies and regulatory bodies
• Large corporates with enterprise risk functions.

Course Booking

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